Payroll Lending Gaining Prominence in Nigeria – Report

Aug 2019
Nigeria, August, 11 2019 - Payroll lending activities have grown in prominence mainly attributable to the unmet demand for small-sum short-term credit by low to middle-income individuals since 2010.

Agusto & Co stated this in its report on ‘Rising prominence of payroll lending activities in Nigeria,’ which explained the operations of payday lenders in the country.

The report stated that borrowers often sought these loan facilities to pay recurring bills including utilities and rent as well as expenses such as school fees, medical bills and bills needed to be settled before the next payday.

These loans typically attracted high interest rates ranging from three per cent to six per cent a month, which reflected the risks associated with the average salary earner, as well as the absence of collateral requirements, the report said.

It mentioned that core players in the payday lending such as Renmoney, Credit Direct and Zedvance had grown business volumes over the last few years, due to the overall gap in the supply of short-term microcredit.

Part of the report read, “In contrast to traditional lenders, industry operators provide customers with a quick and convenient process for obtaining loan facilities, with disbursement typically within 48 hours of submitting all required documents or the meeting of all conditions.

“Unlike personal loans offered by major financial institutions in the country, payday loans are widely recognised for the absence of collateral (and in some cases, guarantor) requirements when granting loans to customers. Lenders typically use the customer’s wages as a basis for lending, with the loan repayment typically a percentage of the borrower’s monthly salary/income.”

Prior to the emergence of core payday lenders in the country, commercial banks dominated the financial services sector, providing loan facilities and savings to corporate clients and to a significantly lesser extent, retail customers, it stated.

Retail financial services offered were primarily tailored towards the upper tiers of the country’s income categories, focusing on high net worth individuals and high earning employees of prominent organisations in the country.

Although alternative lenders such as community banks and credit unions existed, these organisations were often left to operate in the periphery due to the dominance of commercial (and merchant) banks.

Part of the report read, “In recognition of the dearth of financial services available to the impoverished and low-income earners, the Central Bank of Nigeria over the last two decades made various attempts to enhance the delivery to financial services to the Nigerian populace.

“Most prominently, the introduction of a microfinance policy in 2005 (and subsequent licensing of over 1,000 operators) was expected to fill the void created by commercial bank operators’ apathy towards individual lending.

“In spite of this, overall penetration remained low, attributable to inherent challenges including poor access to finance, weak risk-management practices and poor understanding of microfinance banking.”

Source : Punch

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