Primitive loaning practice refers to the face-to-face personal loan service, where the money customers borrow is delivered to their door steps, while they can also remit back or make savings through the same process.
Globally, this process has now been digitalised with the help of technology.
With the impact of emerging technologies on national economies, loan service providers have developed digital platforms using progressive web applications to replicate the performance and speed of websites. Such applications can quickly be downloaded onto a mobile phone by subscribers.
Due to the technology’s link to a supporting website, the lender can provide the clients all of the necessary details about the loan agreement, repayments, and consent. As a result, customers can rest in the assurance that the application process adheres to all legal and compliance requirements.
Banks and other financial institutions in Nigeria charge different interest rates for lending to customers in various sectors of the economy. Many are unbearably and only a few are accessible. Because many bank loans are pegged at N100,000 (hundred thousand Naira) upward, people at the grassroots cannot access loans from a number of banks.
These rural dwellers are more comfortable with short-term loans that can easily be paid back without stress to lenders, who are usually family members or friends. Thus, the coming of online loan platforms suggested a level of economic ease to unsuspecting Nigerians at the outset.
Given the relief of having online loans providers reachable at the click of their smartphones, little did subscribers know that these same lifesaving loan apps could become grievous to their finances and wellbeing.
The Federal Competition and Consumer Protection Commission (FCCPC) and other regulatory agencies had welcomed some of these platforms and service providers for closing the lending gap to consumers who would otherwise be unable to obtain conventional loans from traditional financial institutions. They platforms also eased the procedures for access to short time finance for many people.
In Nigeria, the high-interest rate demanded by many unregistered financing platforms is perpetrating the notion of loan sharking, which is highly disturbing, if not fraudulent and violating of the ethics of loan transactions. Various unscrupulous practices have been evolved to rip off customers through crazy interest rates that many are not well-informed about before getting into.
Many borrowers agree to the terms and conditions of these loan sharks, not knowing the difficult financial situation they might find themselves in subsequently. While some loan apps have tried to regulate their interest rates, others have posed as professional cybercriminals, extorting their clients and ridiculing their image when they are unable to pay back on time.
Of recent, the FCCPC raided the premises of seven Lagos-based unlicensed online loan platforms. Following this, the operational premises of GoCash, OKash, EasyCredit, Kashkash, Speedy Choice, Easy Moni, Sokoloan were shut down in the aftermath of the inter-agency monitoring exercise led by the Commission.
While some of the online lending operators have complained of huge losses as a result of some customers’ reluctance to pay back in relation to their agreements, many of these customers also consider the lenders as financial bullies who should be prosecuted.
In all this rumble, it is an abuse of Nigeria’s tech ecosystem to, first, have unlicensed loan apps freely operating over the years, and, second, for borrowers to be subjected to naming and shaming, with their privacy being violated in the name of loan recovery.
It is, therefore, expected that Nigeria, which boasts of the largest tech ecosystem in Africa, should have a centralised database of online financial institutions. Yet, several agencies have databases including the biometric information of citizens.
This means that citizens’ data and biometrics collected by various agencies like the Nigerian Communications Commission (NCC), Central Bank of Nigeria (CBN), Federal Road Safety Commission (FRSC), and the National Identity Management Commission (NIMC), among others, should be stored in a central database that could be accessed easily by appropriate authorities whenever the need arises. As such, third parties would only be able to access people’s data through the application of extant data protection and privacy laws.
Also, without a centralised database, a dubious customer can borrow on about 10 different loan platforms at the same time, thereby causing the online loan companies to incur huge losses.
The creation of the Central Database on Recovered Assets and the Central Criminal Justice Information System (CCJIS) to enhance transparency in the fight against corruption in the country should also be entrenched in the FinTech sector for both traditional and digital transactions.
The FCCPC and CBN regulation of interest rates on lending by online loan service providers is necessary, otherwise these companies would keep devising unprofessional means of extorting exorbitant interest rates through direct debit from their customer, which can be ultimately damaging.
In its determination to curb the excesses of some of these loan companies, the National Information Technology Development Agency (NITDA) imposed a penalty of N10 million on any online lending platform that acts on the level of data privacy invasion. But still many of them are operating in transgression of the Nigeria Data Protection Regulation (NDPR).
The recent clampdown by the joint task force fronted by the FCCPC has reaffirmed the need to check and balance the activities of online loan apps.
Online vendors such as Apple and Google stores are urged by the Federal Government to shut down fraudulent online loan apps, but more definite measures need to be put in place to guard against future occurrences.
Online loan apps were developed to help people have access to immediate loans, easier and more convenient ways of getting money from the comfort of their homes, and with no hassles. In this regard, if properly regulated it will benefit the economy and society at large.
Therefore, NITDA, CBN, FCCPC, and other regulatory agencies should incorporate online loan companies with conventional banks as an affiliate to digital banking for immediate accessibility to short-term loans by customers. The licensed and recognised loan apps should operate based on guidelines provided by the relevant regulatory authorities.
This will also help NITDA to uphold its NDPR, the CBN to sustain checks on the interest rate, and FCCPC to ensure that customers no longer suffer harassment and privacy violations.
All things being equal, the digital financial system is vital for economic growth and national development.
Sambo writes from Abuja via zeenatsambo@yahoo.com
