How Loan Apps in Nigeria Turn into Loan Sharks and Ruin Lives

Newsflash Nigeria StaffAugust 12, 2023

4 minutes read

Apps Loans — Some loan shark logos used to illustrate the story

Nigeria is a country with a large population of people who struggle to access formal financial services. According to the World Bank, only 40% of Nigerian adults have a bank account, and only 6% have access to credit. This creates a huge gap in the market for alternative sources of funding, especially for emergencies and small businesses.

However, not all alternatives are created equal. Some of them are unregulated lending platforms, also known as loan apps, that operate outside the legal and financial system. These loan apps have been accused of being predatory, exploitative, and abusive towards their customers. They charge exorbitant interest rates, violate customer privacy, and use harassment and intimidation tactics to collect debts.

In this blog, we will explore the experiences of some Nigerians who have fallen victim to these loan sharks and the devastating consequences they faced.

One of them is Mr Ola, a supervisor in a private company in Lagos. He narrated his ordeal as follows: “In 2021, I had an emergency that required immediate cash. I couldn’t find anyone to borrow from, so I decided to try one of the loan apps that I saw advertised online. I downloaded their app and took a loan with confidence that I would pay back before the deadline. I did pay back the loan plus the interest, which was around 65 per cent.

“But then I realized that I had no money left, as I was a low-income earner. I needed cash again, so I took another loan from a different app. This time, I couldn’t pay back on time, and that’s when the trouble started. The app started calling me and threatening to ruin my reputation and everything I had worked for. They said they had access to my photo gallery, text messages, and contacts.

“They started sending messages to my contacts with pictures of me, claiming that I was a rapist and a murderer who was on the run. They also called my contacts and insulted them, saying that I used them as guarantors without their consent. It was a huge disgrace and humiliation for me.”

Mr Ola’s story is not an isolated one. Many Nigerians have shared similar experiences of being trapped in a cycle of debt and harassment by these loan apps. A group of people who have suffered from these apps revealed that the average interest rate charged by them is around 10 times higher than what the financial regulators allow. Some of them charge up to 80 per cent interest per week, making it impossible for borrowers to repay their loans without taking more loans.

These loan apps also disregard customer privacy and data protection laws. They collect personal information from borrowers without their consent and share it with other apps or third parties. They use this information to blackmail, coerce, or manipulate borrowers into paying their debts or taking more loans.

Furthermore, these loan apps resort to unethical and illegal methods of debt collection. They use verbal abuse, physical violence, character assassination, and public shaming to pressure borrowers into paying their debts. They also contact borrowers’ employers, family members, friends, and acquaintances to embarrass them or damage their relationships.

These practices have caused severe psychological and emotional distress for many borrowers, leading to depression, anxiety, insomnia, and even suicidal thoughts. Some borrowers have also lost their jobs, businesses, or properties due to these loan apps.

The question is: how are these loan apps able to operate with impunity in Nigeria? The answer lies in the lack of regulation and oversight by the authorities. Nigeria does not have a comprehensive legal framework for regulating digital lending platforms. The existing laws are outdated, fragmented, and inadequate to address the challenges posed by these platforms.

The Central Bank of Nigeria (CBN) has issued some guidelines for licensing and supervising microfinance banks and other financial institutions that provide credit services. However, these guidelines do not cover unregulated lending platforms that operate outside the banking system. The CBN has also warned the public against patronizing these platforms, but it has not taken any concrete action to shut them down or sanction them.

The Consumer Protection Council (CPC) is another agency that is supposed to protect consumers from unfair and deceptive practices by service providers. However, the CPC has not been effective in handling complaints or enforcing sanctions against these loan apps. The CPC has also admitted that it lacks the capacity and resources to monitor and regulate these platforms.

Therefore, there is an urgent need for the government to enact a comprehensive law that will regulate digital lending platforms in Nigeria. Such a law should:

Define the scope and criteria for licensing and operating digital lending platforms
Set limits on interest rates, fees, charges, penalties, and repayment terms
Establish standards for customer verification, data protection, and consent
Prohibit unfair, abusive, or deceptive practices by digital lending platforms
Provide mechanisms for dispute resolution, redress, and enforcement

Until such a law is enacted and implemented, Nigerians will continue to be at the mercy of these loan sharks that prey on their financial needs and vulnerabilities. Therefore, we urge the government to act swiftly and decisively to protect the rights and interests of Nigerian consumers. We also advise Nigerians to be wary of these loan apps and seek alternative sources of funding that are legal, regulated, and transparent.

Source: Peoples Gazette