The Nigerian Payday Loans Industry has witnessed a rapid growth in recent times and is expected to grow considerably by 2020 and beyond.
These loans are designed to meet the short-term needs of an individual until the next payday, when the loan is usually repaid in full.
Payday Loans, referred to as salary advances, payroll loans and payday advances, are typically small, short-term unsecured loans that are tied to a borrower’s payday according to Agusto & Co.
These short-term loans given out by banks non-alternative traditional lenders have grown in prominence. They have taken advantage of the gap created by traditional banks, and other traditional financial institutions’ apathy towards lending. They have also developed on the back of the emergence of Fintech companies. So essentially you have a situation where customers can access payday loans within minutes.
There are a number of countries like U.S, Canada, Netherland and UK where payday loan lenders have come under scrutiny largely because of high interest rate they charge. Their interest rate can be as high as 35 percent annually to as high as 1,000 percent.
Because this scrutiny, the regulators of these countries had taken a formal stands on monitoring payday loan lenders and their activities.
Essentially, greater emphasis has been placed on consumer protection, responsible lending and customer education. A lot of payday lenders abroad are now mandated to educate the customers on what they are actually getting into in terms interest rate, rollover facilities, and implications of taking on a payday loan facility.
“What payday loan lenders are to developed countries is what we have in Nigeria as microfinance banks. While MFBs serve the poor and the disadvantaged economically, payday loan lenders abroad focus on low-income earners, poor households and provide support for them,” said Osaze Osaghae, an analyst at Agusto & Co, said recently.
He noted that payday loan lenders are highly regulated in these countries. However, in Nigeria, regulation is still relatively weak.
“Payday loan is not an industry perceived but remains a product handled by a number of financial institutions across the different facets of the financial services sector,” he explained.
Since the 1990s, commercial banks dominated the financial services landscape with a focus mainly on providing financial services to corporate clients and to a significantly lesser extent retail customer.
Around 2000s, the CBN introduced microfinance policy in recognition of the dearth of financial services available to retail customers. The focus was mainly on the low-income and the economically disadvantaged.
In 2018, the CBN revoked the licences of 153 MFBs while a few new ones were licensed. As a result of these developments, there was a decrease in the number of MFBs in operation from 1,008 as at 31st December, 2017 to about 888 as at 31st December, 2018, the summary of 2018 annual report by the Nigeria Deposit Insurance Corporation (NDIC) revealed.
The year 2010 witnessed the entry of pioneer payday lenders such as Renmoney, Credit Direct, Zedvance and Page International, boosted by rising prominence of Fintech, evolving customer expectations and social norms and unmet demand for loans. It is expected that by 2020 and beyond, there would be a considerable growth in the number of payday lenders, driven by rising competition from commercial banks and nano (micro) lenders leveraging Fintech, as well as increased regulation of payroll loan products.
HOPE MOSES-ASHIKE
