Nigeria: Central Bank Warns As Hard Times Trigger Influx of Fintech Banks

With economic hardship biting harder, no fewer than 50 fintech banks have flooded the financial service space offering uncollateralised micro loans to Nigerians at exorbitant interest rates, LEADERSHIP investigation has revealed.

Findings, however, show that only few of them are actually registered with the Central Bank of Nigeria (CBN) while some of them are unregistered. It urged Nigerians to investigate any fintech banks they want to subscribe to, stating that the regulatory body will only be responsible for the complaints of licensed fintech banks in the country.

The Fintech Bank operates through an app, of which subscribers or loan seekers are asked to download before they can access micro loans and other financial services.

Some of the current digital lending banks are Sokoloan, OKash, GetCash, Carbon, Branch, GoCash, QuickCheck, PalmCredit, Get Loans, 9jaCash, and Fairmoney, among others, while new ones continue to join this list on a regular basis.

For most of them, the requirements from an interested loan seeker are Bank Verification Number (BVN), phone number, Regulated Identity Card, information on the ATM card, place of work, likely monthly income, date of birth, among others, a development that equally raises questions about the security of those pieces of information in a digital world where hacking is becoming a regular occurrence.

All this information is to be submitted virtually or digitally as there is no human interface in the process, with most of these firms devoid of physical presence in the country.

While the maturity period of such loans range from seven days to one month, the interest rate goes as higher as 20 to 30 per cent on a loan facility, with micro loans that can be sourced from these banks ranging from N1,000 to N1 million and above, depending on how and the frequency of honouring lending obligations. This is, however, crucial to how one grows from a small amount to a bigger loan facility.

Although there were pockets of these banks pre-Covid-19, the majority of them, investigation shows, surfaced during the pandemic, offering soft loans to people who were facing hard times meeting their daily financial obligations, as many people lost their sources of livelihood.

Findings also revealed that most of these firms have devised dirty means of recouping their loans from defaulters by sending stinking messages about the person’s loan obligations to all his phone contacts, wife, father or close relatives, hence causing psychological damage to their debtors, who must still pay back.

They believe that putting the defaulters to shame would enable them to recoup their loans, even as some of the loan seekers are now suffering from the trauma that this shaming has brought to them.

Unconfirmed reports say these digital lending banks grant several millions of naira on a daily basis; however, despite the challenges of high interest rate and poor services, among others, the rate of default has been on the increase, partly due to high interest rate that debtors struggle to cope with at the point of settling their debts.

In the end, they borrow from friends and relatives to settle this debt and request for more loans, thereby making them hooked to these digital banks. To this end, most loanees now have multiple loan apps, using one debt to settle another, just like recycling loans.

LEADERSHIP was able to access the comments of users of these loan apps, and while some applaud these firms, most have bad experiences. The major complaints are high interest rates, poor customer services, and insecurity of information submitted, among others.

A Cashsea Loan App user, Modinat Adelani, said: “This app is a very bad app. I will advise you not to collect money from them. Even after repaying your loans, they will kept on calling and harassing you for the loans you have already paid.”

Martin Tompong who is a customer of CashLion Loan App said: “I have very bad experience with this loan app. Apart from harassment, the interest rate is too high for a seven days’ loan.”

KashKash customer, Dare Ogundeji, said “the major discouraging part is extracting users’ information, sending unsolicited messages and calls to their contacts and stressing the life out of a customer with calls and text messages even when the repayment date has not even elapsed.”

On Kuda Loan App, its user, Piper Chima, said: “Great App. It is working fine. I receive alerts on the app and via email immediately as far as my data is on. The app is sleek; it can only be better.”

A Fairmoney Loan customer, Olajide Sanni, said: “… I was lured into collecting the loan, initially thinking if I pay earlier than the scheduled date, my creditworthiness would Increase. To my surprise, the loan was reduced drastically to a very irrelevant amount with an interest rate of 26.5 per cent for two weeks and 30 per cent for one month.”

CBN spokesperson and director, corporate communications, Osita Nwanisobi, in a telephone interview with LEADERSHIP at the weekend, said the primary role of CBN is to regulate financial services in Nigeria and financial institutions by virtue of the Banks and other Financial Institutions Act, 1991(BOFIA). To this end, he said, before fintech companies offer financial services to consumers, they must obtain necessary licences and comply with the CBN’s applicable guidelines.

He, however, urged Nigerians who have genuine complaints against the registered fintech banks to approach the apex bank for redress.

“Of course, CBN regulates the fintech banks, but the question is, are they registered with CBN? For the registered ones, CBN will intervene. If they (fintech banks) are registered, those who receive such threat messages can make complaints to the apex bank and if it’s a genuine case, we will pursue the case,” he said.

On people who were never a party to the loans receiving threat messages from some of these digital banks, he said: “If you are not a party to the agreement, you are not bound by such agreement and so you cannot be prosecuted or punished for anything you knew nothing about.”

Also speaking with LEADERSHIP, a renowned economist, Tayo Bello said the digital banks are cashing in on the challenges in the economy and the desperation of Nigerians to just get credit at all cost without minding the interest rate.

He described as alarming the 30 per cent interest on these digital loans, saying it makes repayment difficult.

He further noted that some of them would be having huge unpaid loans as smart Nigerians might circumvent their system and escape with the loans.

On the security of information that customers are divulging on these loans app, he urged customers to be extra careful in a world where hacking is becoming more pronounced, stating that the vital information such as BVN, ATM Card details, date of birth, place of work and so on should be private and should not be a public document.

He warned the patrons to be extra careful not to have their fingers burnt in the process, adding that these digital banks are just using the uncollateralised loans as bait to gain customers.

“In a country ravaged by poverty, unemployment and non or low disposable income, people can go to any length to get money. It’s surprising how people can survive on such lending with an outrageous interest rate which is to be paid in under one month,” he pointed out.

Meanwhile, the national commissioner of Nigeria Data Protection Bureau, Dr Vincent Olatunji told LEADERSHIP that the National Information Technology Development Agency (NITDA), as the apex regulator for information technology in Nigeria under the supervision of the Federal Ministry of Communication and Digital Economy, is empowered by Section 6(c) of the NITDA Act, 2007 to develop guidelines for electronic governance and monitor the use of electronic data interchange and other forms of electronic communication transactions in Nigeria.

“The agency issues the Nigeria Data Protection Regulation (NDPR) as Nigeria’s first comprehensive framework for the protection of personal data. The NDPR provides the principles and framework for the protection and processing of personal data of Nigerians and residents,” he added.

On efforts to protect Nigerians against dubious online lending platforms, Olatunji disclosed that NITDA, along with other regulatory bodies like the Central Bank of Nigeria (CBN), and the Independent Corrupt Practices and Other Related Offences Commission (ICPC), among others, are striving to ensure that Nigerians are protected from being defrauded by these platforms.

Citing an example, the national commissioner disclosed that a few months ago, NITDA sanctioned an online lending platform, Soko Lending Company Limited (Soko Loans), for privacy invasion.

He said the action was taken after receiving a series of complaints against the company for unauthorised disclosures, failure to protect customers’ personal data and defamation of character.

“One of such complaints filed by Bloomgate Solicitors on behalf of its client, the data subject, was received on Monday, 11th November 2019. NITDA, as part of its due diligence process, commenced investigation over the alleged infractions of the provisions of the NDPR.

“Soko Loans grants its customers uncollateralised loans and requires a loanee to download its mobile application on their phone and activate a direct debit in the company’s favour. The app gains access to the loanee’s phone contacts.

“According to one of the complainants, when he failed to meet up with his repayment obligations due to insufficient credit in his account on the date the direct debit was to take effect, the company unilaterally sent privacy invading messages to the complainant’s contacts,” he said.

In view of the foregoing and in consideration of its implication on the privacy of Nigerians and erosion of trust in the digital economy, Olatunji said NITDA imposed a monetary sanction of N10 million on Soko Lending Company Limited, and directed that no further privacy invading messages be sent to any Nigerian until the company and its entities show full compliance with the NDPR.

The agency also directed the company to pay for the conduct of a Data Protection Impact Assessment by a NITDA appointed DPCO on its operation, and placement on a mandatory Information Technology and Data Protection oversight for nine months, the national commissioner added.

While the agency is striving to ensure that it protects Nigerians against dubious lending platforms, Olatunji however urged all Nigerian businesses and data controllers of their obligation to engage NITDA-licensed Data Protection Compliance Organisations (DPCO) to guide them towards compliance with the data protection law. He said the agency is poised to fully enforce the NDPR with the aim of sanitising the operating environment, instilling confidence in the digital economy and protecting the right to privacy of Nigerians.

He also advised Nigerians not to give information to unauthorised people, and even if they had to, they must read the draft on which they must do that.

“You must find out if the organisation you are about to give your information to is legitimate and if they have registered their companies with regulatory bodies,” he added.