Collateral-free Loans with Collateral Damage: How Loan Sharks Devour Nigerians

As personal finances head south for millions, many Nigerians are hanging by a thread and in catch-22 situations, they have to walk a tightrope — either swimming in figurative sharks-infested water or sink in troubled waters — as they deal with a horde of collateral-free loan apps. Bayo Akinloye reports

Last November, Fidelis Ubong did not hesitate to take a N15,000 loan just a couple of days before his wedding.

“It was a collateral-free loan,” Ubong, who was excited at the time of taking the loan, tells THISDAY. “I learnt about the loan app through a friend who saw the firm’s advert on Facebook.”

He was given two weeks to pay back ₦18,950 — principal and interest.

As his honeymoon began to climax, he got a rude awakening. But he is not alone. Hundreds of thousands of Nigerians who had gone a-borrowing from some loan apps have similar stories to share. They all felt caught between a rock and a hard place.

Currently in Nigeria, at least 90 million people live in extreme poverty as the hand of the World Poverty Clock ticks furiously. In 2020, many Nigerians were expected to sink deeper in the sea of abject poverty as crude prices dipped and the COVID-19 pandemic gave the country’s floundering economy further pounding and in no time, Africa’s largest economy by gross domestic product slipped into a recession for the second time in five years. It is not uncommon for many hungry Nigerians to borrow as little as ₦500 from a neighbour, friend, or relative.

Generally despised by banks and overlooked by moneybags, many broke Nigerians and those in financial straits are finding succour in collateral-free loan apps. There are a teeming number of these loan applications run by various companies registered in the country. Amongst them are Sokoloan, OKash, GetCash, Carbon, Branch, GoCash, QuickCheck, PalmCredit, Get Loans, and 9jaCash.

Ubong, a school teacher, had pitched his tent with Sokoloan — a subsidiary of Soko Lending Company Limited. Sokoloan is an online lending platform that provides short-term loans in Nigeria to help cover unexpected expenses or urgent cash needs.

“You can apply for a Sokoloan loan 24 hours a day, seven days a week with our quick application process that lets you know your status within minutes. For online loans in Nigeria without collateral, fast loans, and quick loans in Nigeria, download and apply for Sokoloan loan,” the firm reassures on its website.

Other loan apps say similar sweet things on their websites. Some of them charge processing fees.

First, Rules of the Game

A QuickCheck loan has interest rates starting from as low as five percent monthly on the first loan; loans range from N1,500 to N500,000 with terms from 91 days to one year. Interest ranges from two percent to 30 percent with an equivalent monthly interest rate of one to 21 percent. For example, if a loanee borrows N100,000 over six months (with a fixed interest rate of 13 percent per month, three repayments of N25,000), he will cough up N150,000.

For Carbon (formerly PayLater), a One Finance & Investment Ltd product, a loan attracts interest rates starting from five percent monthly on the first loan and its loans range fromN1,500 to ₦1m (Nigeria) and Ksh 500 to Ksh 30,000 (Kenya) with repayment terms of up to 64 weeks. Its loan interests range from 1.75 percent to 30 percent, with an equivalent monthly interest rate of one to 21 percent. The annual percentage rate on a Carbon loan ranges from 23 to 60.8 percent.

For example, for a ₦50,000 three-month loan, Carbon charges two percent monthly. With an APR of 24.3 percent, a loanee must, after 90 days, pay N53,000.

Another loan app, OKash (Blue Ridge Microfinance Bank Limited), has similar interest rates. It offers loans as much as ₦500,000 and as little as N3,000. Its interest rates are between 0.1 percent and one percent. “Our interest rate is calculated on a daily basis. Annual interest rates are from 36.5 percent to 360 percent. Origination fees range from N1,229 to N6,000 for a one-time charge,” OKash reveals.

To break it down, a 91-day loan payment terms have a processing fee of 41 percent and an interest of 9.1 percent. For the loan processed with a principal amount of N3,000, the processing fee would be N1,229, the interest would be N273, and the total amount to be repaid will beN4,502.

But for another loan app, 9ja Cash, a loanee can choose to repay between 91 and 180 days. Interest ranges from one percent to 34 percent with an equivalent monthly interest of three percent to 29 percent (and APR of 29 percent to 365 percent) allowing you to borrow up to ₦300,000 from a minimum of N5,000. If a loanee chose a six-month loan and borrowed N1,000, 9ja Cash charges an interest rate of 4.4 percent per month, the interest rate being 26.4 percent, “we would charge you N263 as the interest of six-month repayment period. Total amount of repayment is N1,263,” the online loan outfit says.

Esther Anibiniran, a Get Loans subscriber, feels the interest rates are impoverishing.

“This app (Get Loans) is incredible. I have got my second loan and it was instant. But I want the owners to work on offering low interest to the available loans. It is not okay paying as high as 50 percent interest on a loan.”

This January, Praise Elijah shared the same sentiment, saying: “The loan app is amazing. But the problem I have is the high-interest rate.”

How Loan Apps Work amid Glitch Galore

“Easy-peasy,” said many subscribers who shared their opinions.

“Our loan app is available to serve customers in Nigeria with Android phones only,” QuickCheck explains. “If you live in Nigeria, need quick cash to settle emergencies and have an android device, all you have to do is: download the loan app for free; sign up to create an account; apply for a collateral-free loan in less than one minute; credit scoring using our algorithm will be carried out (no collateral needed); and if eligible, the cash loan will be credited into your account within minutes.”

Last December, Bello Lukman did not feel that few-minutes effect from Get Loans, saying: “I and my wife have been trying to apply for a loan on this app but it has been unsuccessful despite the fact that we don’t have any record of owing. Though the application was a great experience as it was very easy to apply.”

That same December, another subscriber, Femi John, could not hide his frustration.

“The most useless app I have come across,” John laments. “Giving out a loan was great; interest rate is cool and the duration period is fine. But what I don’t like about them is that when your loan is about five days due, they send you a message that you should pay up on time which I did. When they are about to give you the next loan you found out that it’s the same loan, they are offering to you which I feel is just too bad.”

This January, it was a different experience for Eniola Oluwatosin, who says: “I love this app. It is reliable. You can meet your needs in case of an emergency.

“But please believe me when I say this: you’ve to pay before or on the due date to avoid unnecessary calls and they can deduct any amount from your account even if your balance is less than ₦100. That’s in case you did not pay on the due date. But I love the app.”

Others like Ajibola Oluti complained about not being able to get another loan. “I have not been able to get another loan since l paid back my last loan because I suddenly cannot log into the app any longer. All I get is ‘unable to log in with provided credentials.’”

Ezekiel Oshin, Elegbeleye Omotayo, Mopelola Azeez, and Williams Ajibola, among many others, rated the app highly. Said Ajibola: “(Get Loans is very reliable and dependable…The issue I have now is that after my first loan and I repaid on time, my loan amount (sic) is yet to be increased. Aside from that, this is the best loan app. The interest rate is very convenient.”

Many loanees complained that many loan outfits sometimes fail to clear their debts even when they have repaid before due dates and allow interests to accrue.

Love Okukwa, a 9ja Cash loanee, could not hide her disgust.

“This year it will never be well with the people behind this app who are trying to frustrate people’s life. How can you always be available to increase overdue payments and you are never available to update someone when the payment has been made?

“I have paid back my loan since last year (2020) and still loan is still increasing day by day in my profile,” Okukwa claims.

Similar complaints were made about GetCash as Joy Panam notes: “I paid the balance of the loan. Up till now, it’s not reflecting on my account. That’s not fair on all levels. I’ve sent emails with the proof of payments.”

The worst of the loan apps, to Solomon Abiama, is GetCash.

“(It’s) the worst system that I have ever seen. How can this company take money from my account after payment? This is the second time. They have not refunded the first money. My money was due on 24 December and I paid on the same day,” Abiama says.

Regarding PalmCredit, Kabir Yahaya says, “I made a complaint on my full payment with proof and linked BVN and still my payment has not reflected and no reply from PalmCredit. But if it’s due or overdue charges PalmCredit is active to call and send messages countless times.” The concerned loan apps were unreachable to reply to these allegations.

Customer Service Agents Rubbing Salt into Wound

Many are the miseries of poor Nigerians. They told THISDAY they get treated poorly by the loan apps customer service agents. Nigeria has a record of poor customer service and the targets are often hard-working, ordinary individuals, especially the poor. It is little wonder then that uncouth customer service agents are said to be making lives more miserable for loan apps loanees. However, virtually all subscribers attested to the courtesy extended to them by Carbon, Branch, and QuickCheck.

Sokoloan, GetCash, Get Loans, GoCash, and 9jaCash loanees were the most upset describing their experience in the hands of the loan apps’ agents as nightmarish.

“The app is reliable with (the) fastest disbursement into your bank account. The only problem the company has to work on is the way their staff approach customers when it comes to late repayment; need to work on the type of representatives (they have). (They’re) so rude; disrespectful while talking to customers,” Bolaji Ademola says of GoCash.

It is not different at 9Ja Cash as George Nnochiri explains: “Worst loan app. Repayment is hell. I’ve repaid my loan …but the app is still counting it as a running loan and adding interest. No contact number to call. Customer service is terrible. Shame.”

About 9Ja Cash, Goodness Ukoh adds, “Very good app: it works exactly when you need it most just that the interest is too much and just one or two days that you didn’t meet up with repayment their customer service (agents) will start calling you rudely.”

An upset Adedoyin Fakorede explains further, “The collection agents are so unprofessional and unethical. They are a bunch of touts, especially the ones called Stella and Gloria.” Of OKash, Austine Adekanmbi notes, “Most of their staff lack courtesy and (are) very insulting to clients.”

Olutosin Olusegun says of GetCash, “Customer service officers are in need of extensive customer relations training. Their choice of words is very unprofessional.”

Gaming the System

Nigeria’s loan apps are facing some heat too as some unscrupulous loanees have begun to game the system.

On Facebook, one John Glenn, with a profile indicating he works at ‘Petronas and Structural Engineering,’ reveals: “I am on a campaign to bring down Sokoloan and we can do this together. First of all, I collected a loan of ₦15,000 from them after they messed with a friend of mine and I refused to pay. I didn’t even pick their calls because I have all their numbers.

“So, they started sending messages to my contacts. I went to my settings on my android phone, under apps and notifications. I opened their app (under permissions) and turned off all permissions so they won’t have access to my locations, messages, and contacts anymore.”

To further game the loan apps, he adds, “I copied all my contacts to my laptop, opened a bulk SMS account and sent messages to all my contacts with ‘Sokoloan’ as the heading, stating that my phone was missing and my account hacked that they should ignore any message, stating that I am a debtor or fraudster; that I am innocent.”

Sokoloan did not respond to THISDAY’s inquiry on this matter.

Apart from Glenn, THISDAY checks suggest that potential loanees can sometimes open multiple loan apps, request loans, and default. With perhaps a limited number of staff, some loan apps after repeated messages and phone calls to get defaulting loanees to pay up, eventually give up but not without informing the country’s credit bureaus.

Many credible loan apps have become calculative in terms of risks, focusing more on interests they can derive and less on the number of loans they grant existing and new loanees.

“I have been reported to the credit bureau by PalmCredit due to the outstanding debt of N3,000 only. It was reported to me by Union Bank. My cell phone was stolen and all the applications on it crashed so I couldn’t repay the loan promptly,” Olakunle Makinde confesses.

Enter Loan Sharks

As a method of getting defaulting loanees to pay their debts, the Central Bank of Nigeria approved naming and shaming, among other legal methods like seizing collateral, “poor credit rating, prosecution under law, loss of business, etc.”

On its website, responding to one of the frequently asked questions (FAQ), ‘What happens if I don’t pay back my loan?’

Sokoloan simply states, “We want to keep you as a customer, so please make every attempt to pay us back on time. If you find yourself in a situation that makes it difficult to make your scheduled repayment, please contact us immediately by sending us an in-app chat message.”

It adds, “We do our best to help our customers avoid these situations and the resulting consequences which can include suspension of your access to our lending service; reporting your account delinquency to multiple credit bureaus; involvement with external collection agencies; possible legal action.”

There is no mention of threatening fire and brimstone and blackmail, as weapons-in-chief.

Sochima Nkwor, identified as a customer service and ticketing officer at Ethiopian Airlines on Facebook, felt scandalised as she shared a message from Sokoloan describing a loanee as a criminal.

Adeola Ranti, a GetCash loanee, says, “After paying for (an) extension, they still behaved irrationally and sent messages to my contacts. How will they clear the rubbish they sent out of the people’s minds? This is absurd.”

One of the messages often sent out by some of the loan apps can be very damaging, bringing to the fore a proverb, he that goes a-borrowing goes a-sorrowing.

Here’s a message, a loan app (with 09063166039) sent to contacts of an alleged defaulting loanee: “Hello, if you know Abiodun Ojo on 08038…, he is a criminal and a fraudster on the run for duping a lending company. You are advised to stay (sic) clear of him as he is not to be trusted because he is wanted. Thank you.”

Then, Sokoloan (using 08060164806) sent this to the contacts of one of its loanees: “Fel Ndo, with phone number 08188…, is a criminal on the run with company’s money. He is wanted by credit bureau. Call if found. Sokoloan.”

Afolayan Luke explains regarding GetCash: “Worst app and worst people. Ever since I have been taking their loans I have never for once defaulted. The last one I took I requested (an) extension option on their app for additional two weeks, having deducted my money from my account for the extension, they kept threatening me and sending messages to all my contacts that I took a loan and I refused to pay back. Useless people!”

Fakorede reveals, “They hide behind the phone and start issuing threats. They seriously need to be trained. Even if a customer defaulted in payment for a day since the interest are being added there is no point for the uncultured staff to be issuing threats to their customer. One thing the idiots fail to realise is that once they can’t retain existing and new customers they will be out of (a) job.”

A disgusted Ukoh adds: “They even disgrace you sending messages to your contacts telling them how you have defrauded their company. Too bad.”

“If you love yourself don’t use this app. The moment your loan exceeds a day after the due date for payment, they start sending messages to your contacts saying you are a criminal on the run. As a matter of fact, I want to sue them,” warns Oladayo Aremu about GetCash.

Another loan app subscriber, Dare Fasipe, says of GoCash: “My experience was unpalatable. Let me just warn potential users: installing all these loan apps makes all your information on your phone vulnerable especially your credit card details, anybody could use it for dubious means. Then, they gain access to all contacts on your phone. If you fail to pay, they’ll be sending messages to all your contacts.”

A 9ja Cash loanee, Cosmas Tizhe, also shared his experience, stating, “Besides their highly exorbitant fee — 33 percent — they have a very stupid customer service with extremely rude relation skills. I defaulted (to pay back my loan) by a week and they sent SMS to all my contacts saying I was a ‘criminal on the run.’”

Ubong, mentioned at the outset, knows better. When his contacts began to call him, asking: “Is it true?” He wondered: “What’s it?” When he was shown the messages, they had received about him being on the run as a criminal, it dawned on Ubong his honeymoon was over. He was not able to meet the two-week deadline and according to him, his plea for an extension fell on deaf ears.

After describing loanees as criminals on the run, recovering their money, the loan apps do not issue any retraction. Perhaps, Ubong and thousands of his ilk will realise that there is no collateral-free loan (as they gave away what is considered one of the most valued commodities in the world today, personal data — digital collateral — for measly loans).

What Will It Take to Lift 100 Million Nigerians Out of Poverty?

In a report with a title as the above sub-heading, published by the World Bank last December, Nigeria is projected to fall into its deepest recession since the 1980s, pushing up to 20 million Nigerians into poverty by 2022. Ranking 152 of 157 countries in the World Bank’s 2018 Human Capital Index, the country has one of the lowest human capital scores in the world. Access to electricity and improving service delivery remain a priority, with 80 million Nigerians lacking access to grid electricity, and annual economic losses due to unreliable power are estimated at $28 billion.

In another report, ‘A Tale of Two Markets: How Lower-end Borrowers Are Punished for Bank Regulatory Failures in Nigeria,’ authored by P.I. Omede, the existence of a larger informal market for the poor and a smaller formal market that caters mostly to elite borrowers “is unfair because it ensures that the poor continue to pay more for credit and highly vulnerable to ruthless lenders.”

The disparity in access, according to Omede, is predicated on the latter’s private property rights and ability to provide valid collateral whereas the former are excluded not because they do not own properties but that they hold ‘dead capital.’

“Regulators, therefore, must initiate regulation that transforms ‘dead capital’ into ‘live capital.’ This will increase the Central Bank of Nigeria’s burden of prudential oversight, but the costs to consumers of exposure to loan sharks, given the sheer size of the informal market in Nigeria, and the benefits derivable from regulatory protection outweigh that burden,” Omede argues.