Challenges and Survival Strategies in Nigeria's Digital Lending Sphere

Nigeria's digital lending sector has experienced significant evolution, facing a multitude of challenges from various fronts. Borrowers express concerns regarding the high interest rates imposed by lenders and the unorthodox methods employed to recover borrowed funds.

Digital lending entities like Lift Above Poverty Organisation (LAPO), VFD, and others encounter obstacles related to assessing creditworthiness, the influx of new competitors regulated by the Federal Competition and Consumer Protection Commission (FCCPC), business risks in Nigeria, and the prevalence of non-performing loans leading to measures that some view as overly aggressive.

In the midst of industry upheavals and collapses, LAPO, a pioneering digital lending platform, stands resilient. The Executive Director of Business Support at LAPO, Israel Aibuedefe, attributes their success to what he terms 'strong human technology.' Aibuedefe emphasized the effectiveness of their ability to identify borrowers through personal connections, such as their residences, relatives, and religious affiliations, which bolsters their confidence in loan recovery. Nevertheless, he acknowledges the significant challenge of integrating technology into this human-centric approach.

Can Technological Solutions Aid Nigerian Digital Lenders like LAPO?

Aibuedefe's insights underscore the current limitations of technology in addressing critical issues like credit assessment and debt recovery within Nigeria's digital lending landscape. Despite attempts by some financial technology companies to revolutionize the sector, several have faced insurmountable challenges.

A poignant example is BlackCopper, a fintech startup backed by venture capitalists that aimed to disrupt digital lending by offering collateral-free loans to underserved demographics. However, after accumulating a substantial debt of N1.2 billion, BlackCopper struggled to collect payments on over 60,000 loans. The CEO, Olumuyiwa Faulkner, attributed the company's financial woes to borrowers providing false information during the KYC process, leading to defaults and evasions.

The Role of Regulation and Technology Integration

Reflecting on the failures in the industry, Israel from LAPO emphasized that technology alone is insufficient, as evidenced by BlackCopper's downfall. He advocates for regulatory frameworks that enhance the efficacy of technology. Israel highlights the importance of regulators implementing solutions like Global Standing Instructions (GSI) to enforce debt repayments from unwilling borrowers through their bank accounts.

While GSI targets non-compliant borrowers, the challenge remains for those genuinely unable to repay debts. Israel emphasizes the need for collaborative efforts between regulators and industry stakeholders to advance digital credit in Nigeria.

The evolving landscape of digital lending in Nigeria necessitates a delicate balance between human-centered approaches and technological advancements, underpinned by effective regulatory oversight and industry cooperation.