The number of companies approved to offer loans to Nigerians through digital platforms, commonly referred to as loan apps, has surged to 320 this September, up from 284 in May. This growth comes as lenders experience a significant increase in loan demand amid escalating economic hardships in the country.
Industry insiders report that applications for loans by Nigerians have quadrupled this year. The current 320 companies active in the digital loan market have secured approval from either the Federal Competition and Consumer Protection Commission (FCCPC) or the Central Bank of Nigeria (CBN). According to the FCCPC’s database, 264 digital lenders hold full approval, while 42 are operating with conditional approval. The database also includes 14 companies licensed by the CBN.
The FCCPC has initiated efforts to register digital lenders under its Limited Interim Regulatory/Registration Framework and Guidelines for Digital Lending, aiming to regulate the sector. However, the relatively easy registration process has encouraged many new entrants into the business.
“The first thing you want to do if you’re in the financial sector is to enter digital lending,” stated Mr. Gbemi Adelekan, Chairman of the Money Lenders Association, the umbrella body for registered loan app companies in Nigeria. “Compared to microfinance, where regulations are stricter and licenses are costly, the entry barrier for digital lending is much lower.”
Beyond the favourable entry conditions, many are attracted to the growing demand for quick loans, despite the associated risks of non-payment. “Many Nigerians are now relying on credit to survive, and loan apps provide instant financial support,” Adelekan noted. He added that demand for loans has now quadrupled compared to what was recorded during the COVID-19 pandemic.
Using his company, KwikPay Credit, as an example, Adelekan explained, “During the COVID period, we received about 1,000 applications weekly. Now, we are seeing between 5,000 and 6,000 applications each week. A lot of people are looking for loans.”
However, he cautioned that most loan applicants do not qualify because they lack a solid credit history. “After passing the BVN verification, 90 per cent of applicants usually fail in the credit history aspect,” he explained. “One of the first things we do is check if an applicant has a financial footprint. Unfortunately, out of 5,000 applications, the system will reject 4,500 instantly. If you have an outstanding loan that you haven’t paid, the system filters you out. Many people don’t realise that their credit history matters.”
Adelekan pointed out that some lenders lower their risk analysis criteria to attract customers, relying solely on BVN verification. These lenders often provide small loans ranging from N3,000 to N5,000 but charge high interest rates to compensate for the risks involved.
Despite the rise in registered digital lenders, many unregistered lenders continue to operate in the market, attracting desperate borrowers. In response to ongoing issues such as customer harassment and defamation through contact lists, the FCCPC has placed 88 loan apps under scrutiny and has delisted 47 from the Google Play Store.
Dr. Adamu Abdulahi, Executive Commissioner of Operations at the FCCPC, emphasised that the primary goal of the registration and approval process is to identify the companies behind the apps, ensuring accountability for any infractions. “Before regulation, there was no way to trace the companies operating these loan apps,” he said. He acknowledged the challenges of balancing the operations of loan apps with the issue of customer defaults, reiterating that despite the challenges, loan apps play a crucial role in the economy.
The FCCPC’s efforts to regulate the sector were initiated under the leadership of former executive director Babatunde Irukera, who introduced the Limited Interim Regulatory/Registration Framework and Guidelines for Digital Lending in 2022. This framework was developed in collaboration with the Joint Task Force (JTF) to promote fair, transparent, and beneficial alternative lending opportunities for Nigerians. The move was prompted by alarming reports of illegal practices among loan apps, including rights violations and other unfair practices.
As of May this year, the number of registered loan apps in Nigeria stood at 284. With the recent approvals, the count has now reached 320, highlighting the rapid expansion of the digital lending market in response to the urgent credit needs of the population.
