Nigeria: Post Covid, loan sharks target most vulnerable Nigeians

By Pius Adeleye
Posted on Wednesday, 7 September 2022 14:33

A trader changes dollars with naira at a currency exchange store in Lagos, Nigeria, February 12, 2015. REUTERS/Joe Penney/File Photo

Yinka* woke in the early hours one morning to the sound of his phone ringing non-stop. Lethargically, he looked at the phone screen, but the multiple missed calls bolted him awake.

“Did you borrow from them?” a friend asked from the other end of the line. Alarmed and confused, Yinka checked his social media apps, which were also sending numerous notifications to his phone.

Cashbus, a loan app “had sent several defamatory messages to every (phone) contact on my mobile phone. They said I was a criminal and that the populace should avoid me,” Yinka tells The Africa Report.

Post-pandemic vulnerability

In 2020, following the outbreak of Covid-19, the Nigerian government declared a lockdown of major economic states worst hit by the virus, strangling a number of small business owners.

In the third quarter of that year, the Central Bank of Nigeria (CBN), reported that the economy was contracting, its worst decline since 1983. Similarly, the National Bureau of Statistics (NBS), Nigeria’s most reliable source of statistical information, estimated that over 80 million Nigerians were living in extreme poverty, an estimate that progressed to 105 million in the fourth quarter, according to the 2020 World Poverty Clock report.

“I had nothing again. The lockdown doubled the price of food, the cost of everything was high—and I got low pay from work,” 29-year-old Yinka says. As a graduate student, he was now working as a driver at a local bakery.

“The bakery was heavily reliant on the patronage of the university students but the lockdown and the industrial action of the university lecturers (ASUU-Strike) pushed the students away from the community,” he adds.

“Expenses were soaring, family needs were piling up and I needed help,” says Yinka.

Juliet Mary*, 51, is a mother of four and a federal government worker for the federal ministry of Science, Technology and Innovation. She runs a medium-scale poultry farm in her compound and things went smoothly until her Research Institute did not get a monthly salary for January. Due to unpaid salaries, many civil servants were forced to access new credit services to make ends meet.

In August 2021, the National Information Technology Development Agency (NITDA), Nigeria’s central IT agency, imposed a sanction of N10,000,000 ($23,900) on Soko Lending Company Limited (Soko-loan), a Chinese-owned shark, for privacy invasion. “I saw the terms of Soko-loan on a Facebook ad but I was unaware that the service had been blacklisted by the Federal government,” says Juliet Mary.

“Towards the last days of February (2022), I borrowed N18,000 ($43) from the Soko-loan app. During the application, the app displayed 92 days as the minimum loan tenure but after I had submitted my data, I saw an interest rate of (about) 45% for 14 days!” she explains.

Loan sharks

In 2021, Yinka’s financial recovery began when lockdown was called off in December 2020. Business at the bakery picked up. However, in February 2022, university lecturers began a strike – the second in two years – demanding a better condition of service. In the subsequent days, the Ukrainian-Russian crisis began—it soared the prices of the flour and it revived the hardship of the pandemic.

“I returned to the credit services,” says Yinka. “I saw an instant-loan app ad on YouTube, it was called a friendly ‘Cashbus loan app’ and I installed it.”

Upon downloading, lenders ask for information and access to calendars, photo, messages, location, phone contact and even battery percentage; and at the verge of disbursing the loan, applicants are told to submit the Bank Verification Number (BVN), bank statement and ATM (card) details. Out of desperation, some users grant the access – sometimes unknowingly – and the data is used by the loan sharks to terrorise the users.

“The 14-day loan tenor elapsed—I could not pay up.” Juliet Mary says. “The exorbitant late-payment charges were adding up, daily and I was frightened.”

In March 2022, amidst the unethical and illegal practices of Soko-loan – and its affiliates: Go Cash, Okash, Kash Kash, Speedy Choice – the Nigerian government shutdown their operations.

Surprisingly, Juliet Mary says “the defamatory messages were still sent to my phone contacts. The recovery agents [of Soko-loan] pressured and threatened me and in few days, the late-payment fee was exceeding the loan. Eventually, my salaries were paid, but astonishingly, Soko loan deducted a double amount of the loan and the late-payment fee.”

Weak regulation

“The [global] fintech ecosystem is evolving on a daily basis but Nigeria is not on this digital voyage,” says Attah Henry, an economist and a digital finance expert.

In August 2022, the Federal Competition and Consumer Protection Commission (FCCPC), a regulator responsible for protecting market competition and promoting consumer protection in Nigeria, outlawed MaxiCredit, Here4U, ChaCha and Softpay—they are also linked to the notorious Soko-loan Chinese-company.

Although, there are existing regulations in the Nigerian Fintech and there are agencies that monitor the activities of the digital space, nonetheless, the tech-quality of these (foreign) loan sharks often outpace the corrupt, porous and outdated digital system of Nigeria.

These loan sharks in Nigeria do not have a banking license, websites or physical address, yet they gain access to the Google play store. When they get caught, they simply rebrand and resume exploitative schemes, a similar strategy that was repeated in Asian countries, such as India, Indonesia and Philippines.

In a similar weakness of the Google regulatory framework, the tech giant ascertained that it does not “allow apps that expose users to deceptive or harmful financial products and services” and its financial policy prohibit “apps that promote personal loans which require repayment in full in 60 days or less from the date the loan is issued.”

Fraudulently, the loan apps claim “91 days” as their lowest loan tenor to get hosted on the Google play store but reports garnered (especially from the app reviews) do not conform to this claim. There are over one hundred loan apps on the play store and their  loan tenor falls between 3 to 40 days at an extravagant rate of 10 to 50%.

“Nigeria’s digital financial management is weak,” says Henry. “Although, there are existing regulations in the Nigerian Fintech and there are agencies that monitor the activities of the digital space, nonetheless, the tech-quality of these (foreign) loan sharks often outpace the corrupt, porous and outdated digital system of Nigeria.”

(*Names have been changed to protect the identities of the mentioned persons)

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