Lending Apps/Institution & Credit Score In Nigeria.
The potentiality of people needing money
is never in doubt, especially because it's relevant to promote entrepreneurship. In well-established countries, government institutions know that their citizens would need money for start-ups.
This financial assistance is mostly targeted at people with defined business frameworks and an achievable profit model. Government institutions do this to not just lift their citizens out of poverty, but to increase the overall economic situation in the country. Reduce unemployment and, the GNP of the country while helping to boost the quality of life of her citizens.
This is why some governments in other countries established the idea of credit score especially when giving out loans to people for business purposes.
A credit score is a score that determines the likelihood of a debtor paying back the money he's been loaned, the timeframe in which the money is paid, predicting their payment
behavior, understanding the pattern, and using it to determine if they are worthy of another loan, should they decide to apply for it. In Nigeria, credit score is an unofficial phenomenon.
A system For Start-ups
This is because the Nigerian government does not have a system put in place to create financial alleviation for start-ups, business ideas, entrepreneurship schemes, or even financial empowerment programs. However, there are establishments outside of government that have taken it upon themselves to provide monetary aid to people for business
In recent times, loan apps have surfaced in Nigeria, intending to lend people money for starting business projects while asking them to pay interest Of course, these interests are necessary because these individuals are Private business owners, and because they're into business for profit, sometimes they charge exorbitant rates to profit.
Loan Apps: Why They're Doomed To Fail
Now some of these loan apps establish in-app credit scores by giving people as low as 2000 naira, about ($1.8) since they consider this amount of money, quite good enough to be disposable since there's the risk that these people they're giving the money to, might not pay back. This way of establishing credit scores has ruined many loan apps and organizations in Nigeria.
This is because a lot of Nigerians do not understand the potential of having an excellent unofficial credit score with private loan businesses in Nigeria. A lot of people use loan apps as places to borrow money with the intent of not paying back, and since there are no concrete signed agreements, it's difficult to indict a defaulter.
A Private Business Model
Loan organizations in Nigeria saw a business opportunity in Nigeria. They recognized the need to render money needs in Nigeria since the government
is not primarily doing this. However, the problem is that there is no official credit score affiliated with people to know their history, and this is why loan organizations might fail more than they might succeed.
In the past, internet providers created a form of in-business credit score where they gave people airtimes according to how well they paid back, and how often they do so. However different business are establishing their own credit scores, making it difficult to have a defined credit score that'll be used to determine the financial enablement an individual is entitled to.
Because credit scores and financial entitlements are not a model enshrined in the Nigerian constitution, private loan institutions might not be successful in their lending business, because they do not have any database for accredited potential clients,
which means that these businesses are working blind and doomed to fail because their initial experimentation of giving out smaller figures, might fail because a lot of debtors might make away with their money.
A System With A Credit Score
Nigerians are not designed to be financially disciplined and one of the reasons is because we do not have credit scores allocated to us. Some people have committed financial misdemeanors, and they're stipulated to be in business with other potential investors,
who they aim to ruin.
Having credit score information might limit or increase the likelihood of people wanting to go into business with other people and also create an atmosphere where private loan businesses might thrive.
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contracts can be treated so that the person in question has to workikg something out, for example. in case of non-payment.
In Nigeria, the system is non-existent. So it makes it difficult to establish a national credit score which these apps can use.
I imagine if you borrow money from those fiat lending apps, the collection services could be rather dangerous. They want to earn the high APR from somewhere.
They exactly want to do that, but in Nigeria, the case is different. Without a recognizable credit score of their customers their business is bound to fail in Nigeria.
It's too bad that people don't understand how a credit score works. We never know when we need that money and the short-termed thinking by people doesn't help. I think having clear guidelines on how much to lend out and to who is probably needed. It's a business and the money has to come from somewhere.
Yeah a lot of people don't understand that these scores can come in handy especially in a time of need. In Nigeria, private organizations, keep databases for credit scores, but there are people who just choose to mess up their opportunities by messing up their score and get into big trouble
Very good write up boss.
Sometimes last week as I was going through Facebook, the advert of one of these app enticed and I downloaded it. As I was going through their terms and conditions ehhh omoooo I was like “noooo they will use interest to kill me finish” and if I can’t pay on time, the embarrassment will be severe. Sharp sharp, I uninstalled the app and just started thinking of another way.
The essence of my little story is too agree with you when it comes to credit score. They go the extra mile in collecting back their money some threatens, some curses but all could have been avoided if they had the borrower’s credit score. I didn’t take out the loan because I wasn’t sure how I could pay back and it scared me. Some others won’t be scared by this and will just go ahead and at a long run won’t pay and the crises will continue.
Well most includes bvn details to their form.
Lovely post sir
Some people would be scared. They will take the money and calculate how they are going to spend it without finding a legit way of paying back. There are so many people who have downloaded so many loan app and borrowed a lot of money and these people are currently on the run. A lot of Africans do not think of the financial consequences of borrowing money without having a proper way of paying back. If the Nigerian system had that credit score. It would really help these loan apps to function better. It is true that their interest rates are very high, a lot of people still do not consider this because they know that they do not plan to pay back.
Giving them permission to access my phone details is what scares me most. What if they are hacked or sell my details or worst, what if there is trojan virus on their server.
That's the problem with lending in these parts of the world, there's no unified metric of measuring a person's credit score so lending businesses will have a hard time turning in a profit. It's hard to get a credit history of the people or have some asset against them if they can't pay back the loan. My hope is that utilising blockchain technology and crypto will help solve that in the future.
I think it has to do with sophisticated of economy. Most African countries aren't sophisticated enough to actually establish a unified metric credit score. These loan apps wants to take advantage of loaning as a business opportunity, but sadly people would get these money and trying to escape payment.
Right! The business opportunity can't work well with the lack of a sophisticated economy. Borrowers will get the money and not be able to repay it or the intention of not repaying it in the first place.
From a simple check with your name and ID number your credit score can be checked in SA, I wonder how long it will to Nigeria to put such infrastructure in place even though it is capable of doing it.
Would be interesting to know how these loan apps operate when the likelihood of debtors not paying back is high, even in SA where credit score is efficiently placed some still fail to pay back.
Hahaha I think Africans will always be Africans. In reality, Nigeria will never put such infrastructure into place. The government does not care about establishing people, it's politics and looting that they're mostly cut out for.
Most loan apps go to the extent of even using the police to trace these people who wants to run away with their money
Currently, palmpay 😂 is the talk of the day regarding that
No. They have a way of knowing the credit score.
When you have a good score with other apps, you get different calls from different apps giving you access to loans because they are aware you can afford to pay them back.
There is one particular app I had that after payment couldn't gain access to loans anymore. Initially, I did not understand why.
But when I checked closely, I discovered, they had other information including the fact I have a particular loan app I had defaulted and was yet to pay back.
So, although I had a good standing with them. My credit score was affected because of the pending payment on the other one.
So, no, you are wrong, well-established apps like Carbon have that information on people's credit scores.
Of a truth, Nigeria does not have a unified metric credit score system. If this was the case, loan apps wouldn't be the only lenders in business. There are private metrics here and there and sometimes it might be difficult to establish an exact metric. My focal point was that Nigeria had no unified metric system and that's why we have these sharks taking advantage of that national failure to create a lucrative sector for themselves.
This kind of initiative is not supposed to be accessible to many Nigerians because intentionally people will just get the app and take a non refundable loan, enjoy themselves with the money without any intention of paying back...who then is in loss? Lol
It's not really an initiative, I was trying to write about loan apps and credit score. The reason why it's problematic to not have credit score in a country where loan apps are thriving make establishing their stance.
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I was playing with my Kuda bank the other and I click borrow they are asking me to grant them access to my messages to know all the alerts and debit. I did not do it but I think one of the major problems in Nigeria is accountability.
You wouldn't blame those guys, although what they asked is against privacy and security, I think what they tried to do was gain more access to you
Some of those loan applications will even lend someone who is not working some money. How do they expect the person to pay them back the money?
Great article, a similar situation exists in Kenya, there is no credit score system in existence. Three or two years back there was an explosion of lending apps giving out loans to every Dick, Tom and Harry. The apps would ask access to the contacts list of borrowers, so incase of defaults they would make calls to the borrowers immediate family members and close friends. It was a mess and most of them have since gone out of business.
We definitely need a good credit score system if successful lending and borrowing is to take place. This is slowly happening and the future looks promising.
Thank you for sharing and wishing you a great week ahead :}