Nigerians are resorting to institutions that provide simple money solutions for short term unsecured loans as the worst economic lull in 25 years sweeps through Africa’s most populous nation.
Record high headline inflation of almost 18 percent and unemployment rate, now at a five year high of 13.1 percent, were always going to cause a stir for the country’s 180 million people, and a trend is fast unfolding; increased appetite for micro loans to meet basic needs.
The microfinance industry is estimated at $60-100 billion, with 200 million clients globally, according to the World Bank.
The growth trend across the world’s main microfinance markets captures sub-Saharan Africa at 15–20 percent, second only to the Asia Pacific which is around 30 percent.
Increased appetite for micro loans may bode well for Nigeria which targets 80 percent financial inclusion in 2020, from current levels of 44 percent. But what’s more to this fast unfolding trend is the picture it paints of the hard times Nigerians are facing at the moment.
“What customers are borrowing for have changed significantly over the last two years,” said Graham Lee, chief executive officer of consumer finance institution, RenMoney with a client base of 25,000 people.
“If you look at July 2014, you could see a number of people borrowing money for overseas trips.Two years later, the same set of people is borrowing to pay school fees and fund education. There is always need for funding but what they would use that funding for changes with the state of the economy,” Lee said. Adding that, “What we have seen in recent months is a large increase in number of clients applying for loans.”
The total loan sales of RenMoney rose 511.6 percent to N685 million in August 2016 from N112million in January 2015, available data showed.
Loan extension by some well capitalised microfinance banks have also swelled, according to more data obtained by Metrobusinessnews.
For instance, NPF Microfinance bank’s loan size grew 21 percent year-on-year to N7.881 billion in 2015, from N6.527 billion in 2014.
Godwin Ehigiamouse, CEO of LAPO microfinance bank, also says the MFB’s loan extension is rising and a target of 5 million additional clients to its current 2.6 million has been set.
A financial analyst who didn’t want to be named said the harsh macro-economic realities were to blame for the renewed appetite for micro loans.
“Over 500,000 jobs have been lost and inflation is biting hard on the disposable income of Nigerians. There is preference for micro loans at this time to meet short term needs,” the analyst said.
Nigeria’s economy slid into recession in the second quarter of the year, contracting by 2.06 percent, after posting -0.36 percent in the first quarter, according to the National Bureau of Statistics (NBS).
The consumption pattern of Nigerians had spurred growth in the country in the last decade, but an era of low oil prices and reduced dollar inflow has starved the West African nation of the very oil with which its economy is greased, the green back.
The financial sector, usually the first to exude times of an economic slowdown, has struggled with liquidity challenges brought on by rising non-performing loans.
The weighted average prime and maximum lending rates of Nigerian banks rose by 1.05 percentage points and 1.06 percentage points to 17.82 percent and 27.93 percent, respectively, at the end of May, the latest CBN economic monthly report reveal. While credit to the economy fell 0.8 percent to N18.1 trillion.
“The decline in credit to the economy didn’t reflect in our activities. In fact, our clients have increased,” said Ehigiamouse.
RenMoney’s Lee observed that the general business environment has really been tough. “This is obvious when we look at our clients, our business partners, suppliers and competitors; and things have been tough for them. In recent months particularly, you can see a significant tightening in liquidity in the banking sector and the increasing difficulty for importers in sourcing forex for imports.
“Generally, all these have contributed to a difficult business environment. This is also reflected in banks, FMCGs and other service industries retrenching or cutting salaries. This affects everybody and it also affects RenMoney.”
Speaking further on how the consumer finance company manages market risks, Lee said the company has continued to maintain strong internal discipline and strong operational efficiency.
“In the last 18 months, we have taken strong proactive steps to ensure efficiency. We strengthened our risk criteria to make it difficult for certain high risk clients to get loans from us and for those who do get, the loans are priced adequately.
“Secondly there are certain aspects of employees of industries we lend less to and some cases, don’t lend at all. Thirdly, we continue to build more diligent underwriting processes.”
