People & Money

Shame as a Loan Collateral in Nigeria

 Contacting and harassing people who didn’t sign up for your loan nor act as a guarantor for the debtor is egregious conduct and no respectable business should be built on a model like this”.

 In the last decade, Nigeria has witnessed an explosion in the number of online lenders. Thanks to inadequate coverage by traditional banks, these new lenders provide people with relatively easy-to-access loans for their personal and even business needs, usually processed through phone apps and websites. Popular online platforms offering loans, such as Carbon, Zedvance, PalmCredit, Okash and Renmoney boasts millions of users and have raised millions of dollars in venture capital. However, many of the lenders are now facing regulatory scrutiny and sanctions for the loans recovery practices that have made them effective in the first place.

As online lenders face a higher risk than traditional lenders who depend on collateral, virtually all online lenders in Nigeria provide loans with high-interest rates when compared to traditional banks. It is not uncommon to see online loans with annualised 100% interest rates. Expensive loans can be hard to collect and without collateral, some of the online lenders have resorted to using shame as a means of forcing debtors to pay up. Many people have reported getting text messages or phone calls outing a relative, friend, or acquaintance as a chronic debtor. The idea is that the debtors could be pressured by people close to them to pay up to avoid embarrassment. And since many of the lenders have managed to remain operational for years, it looks like this method has worked for them.

But the practice has both ethical and legal k-legs. During a loan application process, the lender extracts data from the form submitted by the applicant as well as from his or her phone. These data can include phone contacts, call records, location data, and even access to messages. The extensiveness of this runs counter to NITDA Data Protection Guideline and the agency has fined a few lenders for this.

Also Read: Many SMEs Divert Business Loans to Building Houses

The other part of the equation is how the lender uses this data to invade the privacy of not only their debtors but also anyone whose telephone number might be on the phones of their debtors. Contacting and harassing people who didn’t sign up for your loan nor act as a guarantor for the debtor is egregious conduct and no respectable business should be built on a model like this. This is one of the practises federal government agencies are now addressing after years of complaints from the public.

This week, the Federal Competition and Consumer Protection Commission (FCCPC) said it has frozen the accounts of some online lenders who were being investigated for violation of their customers’ rights. The FCCPC investigation focuses, among others, “interest compounding and loan repayment/collection practices.” The agency is working in concert with the Independent Corrupt Practices Commission (ICPC) and the National Information Technology Development Agency (NITDA) which in January fined Sokoloan ten million naira for abusing its customers’ data. It is clear the government is sending a message to these companies that they simply can’t do as they please with their customers.

But there is something to be said about these customers too. Nigerians need to have a better understanding of how credit works. When you take a loan, you must pay it back. So, it is important to understand the interest rate charged, how it compounds and how any default is penalised. The ease of getting a loan should not make you all giddy to forget your responsibility to pay back. You must also be aware of all the conditions attached to the loan, so you are not surprised by the collection practices of your creditor. Unlike government loans which Nigerians love to abuse, private lenders have a duty to their shareholders to retrieve all money loaned out. While this is not to justify the actions of the lenders, it is important people who take these loans also take personal responsibility for their decision. As always, it takes two to tango.

Sodiq Alabi

Sodiq Alabi is a communications practitioner and analyst who has experience in leading and supporting communication processes. He has expertise in organising media events, preparing reports, creating content, and managing websites and social media platforms.

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