Loan Sharks Proliferation in Nigeria
In Nigeria, Loan sharks, often referred to as “money lenders”, have been a persistent issue in the country, following their unethical lending practices.
While Nigeria has regulations and frameworks that govern the lending space, these loan sharks have continued to launch operations, operating outside the legal framework.
Their activities are not in conformity with the CBN consumer protection regulation as regards to debt recovery, which mandates financial institutions to ensure that debt recovery processes are transparent, courteous, and fair.
While the CBN warns that the process of recovering loans from customers must be devoid of harassment, intimidation, or threat, these loan sharks have continued to go against the CBN orders, by continuously harassing defaulters.
In a scenario where a borrower defaults to pay back the loan borrowed at a stipulated date, these loan sharks engage in unethical practices, such as accessing the contact list of defaulters and sending unpleasant messages which often include threats.
Also, as regards their interest rates, these loan sharks charge outrageous amounts, contrary to lending ethics, which often leads to a constraint for borrowers to pay back on time.
However, this unwholesome practice is peculiar to unlicensed lenders. Unlike the legitimate money lenders licensed by the Central Bank of Nigeria (CBN), who offer fair interest rates.
In case of default in payment, rather than harassing defaulters, they go through the official route by reporting them to the Credit Bureau, which in turn blacklists the Bank Verification Number (BVN) of such persons, thus blocking them from securing loans from any other financial institution in the country.
It is however worth noting that there have been calls in Nigeria from different bodies and commissions, expressing concerns that the proliferation of these loan sharks poses a serious threat to Nigeria’s economy.
Therefore, in a bid to curb the widespread of these loan sharks across the country, the Nigerian government through the Federal Competition and Consumer Protection Commission (FCCPC) has continuously swung into action to checkmate the activities of lending apps and ban those operating illegally.
The Federal Competition and Consumer
Protection Commission (FCCPC) had served wide-ranging orders on Google LLC (Play Store) and Apple Inc. (App Store) to enforce the withdrawal of certain money lending applications from their stores.
Also, the FCCPC as part of its wide-ranging orders against unlicensed and illegal online money lending banks had subsequently directed them to stop compounding interest and loan collection.
While the government is playing its part in ensuring that the lending industry is sanitized and customers’ privacy is respected, reports reveal that many users of these platforms engage in the mischievous acts of taking loans without the intention to pay back.
1. Lack of Access to Formal Financial Institutions: A significant portion of Nigeria’s population, particularly in rural areas, lacks access to traditional banking services. This forces many, individuals and small businesses to seek out alternative sources of credit, such as loan sharks.
2. High Demand for Credit: Nigeria’s economy is characterized by a large informal sector, and many people require small loans for various purposes, including business expansion, education, and medical expenses. This high demand for credit creates opportunities for loan sharks to thrive.
Check Out Other Reasons Why Some Nigerians Still Patronize Loan Sharks
3. Limited Regulation: While Nigeria has regulations governing lending and microfinance institutions, enforcement can be weak, and regulatory gaps may exist. This can make it easier for loan sharks to operate outside the legal framework.
4. Economic Challenges: Nigeria has faced economic challenges, including high
unemployment rates and inflation. These economic difficulties can lead people to seek
loans from loan sharks out of desperation, as they may have limited access to formal
employment or financial support.
5. Lack of Financial Education: Many individuals in Nigeria may not fully understand the terms and conditions of loans offered by loan sharks. This lack of financial literacy can make borrowers vulnerable to exploitative lending practices.
In Conclusion, despite the significant efforts of the federal government to delist illegal loan apps on countless occasions, new ones have continued to emerge.
Therefore, in a bid to ensure proper regulation of the lending space and to clamp down on illegal loan apps, it requires a combined effort from different bodies in the country.
This should include tough regulatory reforms, financial education programs, and several other efforts to address unwholesome practices in Nigeria’s lending space.
Additionally, increased enforcement of existing lending regulations and consumer protection measures can help curb predatory lending practices.
