Defaults on loans hit FinTech companies hard – Nigeria – The Guardian Nigeria News – Nigeria and World News

0

Operators retreat as systemic risk weighs on credit
• Job insecurity is a major challenge
• Credit companies explore regulatory loopholes
• “The increase in defaults is not unique to smart lenders”

The risk-based growth of Nigeria’s financial technology (fintech) companies could face its first major test as they struggle to keep default rates tolerable amid growing economic uncertainty.

The Guardian learned on Monday that the default rate was rising at the same lightning speed that industry lending had seen in recent years, forcing companies to reconsider their business models.

According to the findings, traders have become more cautious in their lending campaign just as they have stepped up their debt collection campaign. Despite the new operational strategies, sources said the default rate was increasing faster than companies initially expected.

“They are becoming more and more risk averse but I think it is too late,” a startup operator told The Guardian on Sunday night who said he “was not listening to loan seekers with bank accounts. savings “with his business.

The source also said he did not make loan amounts greater than the applicant’s savings, which serves as collateral. “In this case, I don’t lose anything if there is a fault. This is my role model, I don’t know the others, ”the source explained.

For many operators, the terms and processes for applying for a loan are as flexible as picking an item off the shelves of a supermarket. Most applicants go through the process from the comfort of their home and office and only visit lender offices to file a few documents such as passports, utility bills, account statements, and ID cards. . The majority of lenders access applicant account standards through apps, but with client permission.

Borrowers are in most cases credited without a confirmed address (residential or official). While some companies ask borrowers to cut off the phone lines of colleagues who could be reached to confirm their employment status, others do not bother to submit filed documents and applicant claims to any form of assistance. ‘exam.

For existing clients, the process could be as easy as just filling out the loan application forms. Customers with current installations are often coaxed into reloading without documentation.

As money deposit banks (BMDs) subject loan applications to a rigorous and irritating scrutiny, competition among FinTech operators borders on convenience, ease, flexibility and speed.

BUT what Nigerians, who patronize smart lenders, gain in convenience and speed, they lose in wacky interest rates of up to 70 percent in some cases.

Lenders, who have forced a few hitherto conservative banks to think smartly about loan product development, have built a huge following in the few years they have operated, capitalizing on the conservatism of conventional banks.

Experts who have followed the operations of new lenders say their casual approach to loan facilitation puts them at more risk, especially in countries like Nigeria where identification is a challenge.

Indeed, the financial powers that they built in the short span of their existence are falling apart. Due to increasing job losses, borrowers face daunting challenges in repaying their facilities. Reacting to the growing risks, lenders seem to have started to learn new business tricks.

For example, a pioneering operator started to readjust pre-COVID payment terms signed with customers a few months ago. Some of the emails sent during the coronavirus lockdown informed customers that their payment dates had been postponed, with some being asked to repay 10 days earlier than the agreed monthly due dates.

The same operator, it was learned, limited loan coverage to Lagos, the Federal Capital Territory and Rivers State. An employee in charge of a new client said the decision was made as part of the company’s measures to “reduce the default rate and mitigate the impacts of COVID-19” on its operations.

The majority of players are rolling back the ambush marketing so far the industry is known for, focusing their efforts on service and stepping back to serve “reliable customers.”

A marketer also revealed that he “no longer chases customers to top up because you might not know what may have happened to their work in the past six months. We are also doing more due diligence to make sure there is a job. If you give a loan and there is a default, you’re in trouble. So everyone’s careful.

Top-up allows a borrower who has not defaulted on his obligation for a reasonable period of time to renew an outstanding facility by taking out an additional loan. Recharge requests are not supported with proof of employment and utility bills. A client simply accepts an offer to take more loans or signifies interest, fills out the loan form, and their bank account is credited.

NEW business practices are being considered by FinTech companies as the math hour heralds the risk-based business model that has been a growth engine for the industry. Companies are stepping up their risk management measures. For example, the percentage of the monthly “loanable” salary has been reduced by some companies. This, it has been learned, is informed by the need to hedge against the risks associated with cutting wages, which has been prevalent.

A senior executive at one of the companies said marketers are regularly asked about unethical practices and cover-up to achieve their goals. Previously, she explained, they (the traders) could swap borrowers who couldn’t qualify under the employee loan category for a window of business credit to quickly strike a deal and increase turnover. business.

Will high-profile smart credit burst soon? Godwin Owoh, professor of applied economics and expert in risk management, said the financial technology industry was in a looming crisis. He wondered how a model with zero risk measures would survive in a country where a conventional bank goes bankrupt almost regularly.

Owoh also said the model explored the shortcomings of s, which he accused of “abandoning proper intermediation for easy income” in a weak regulatory framework. He warned that the industry could spark the next crisis in the financial industry.

Additionally, Olaniyi Ali, former head of Lagos’ business office, First Central Credit Bureau, observed that fintech ignores the most basic creditworthiness and profiling required to determine the integrity of loan seekers. According to him, fintechs must necessarily partner with credit bureaus to determine the creditworthiness of those to whom they lend.

Ali said relaxed industry regulations were responsible for poor risk management. “The lack of strict regulation of the operation is one of the main reasons why operators boycotted risk management regulations,” he said.

However, Victor Ogiemwonyi, a retired investment banker, said the high default rate was a common feature of an economic downturn. According to him, this is not unique to digital banking, as non-performing loans (NPLs) from MDBs are also on the rise as individuals continue to struggle with a higher cost of living and rising unemployment rate. rise.

RENMONEY, a sister company to Renaissance Capital, owned by foreign interests, ironically took the first blow in an aggressive cost-cutting strategy at the onset of COVID-19, laying off 300 employees in March. The company explained that it was getting even more digital; therefore, its application would require even less human intervention. Still, those close to the Russian-owned company said the company was preparing for the difficult days ahead. Maybe the bad days started much earlier than expected.

Leave A Reply

Your email address will not be published.