Lagos – Payday lending first emerged in the early 1990s as banks in developed countries dialled back on small credit offerings, leaving consumers in need of quick-fix cash and emergency funds with little choice, but to turn to alternative lenders and financiers.
Retail financial services offered were primarily tailored to the upper tiers of the country’s income categories, focusing on high net worth individuals and high earning employees of prominent organisations in the country.
Although alternative lenders such as community banks and credit unions existed, these organisations were often left to operate in the periphery due to the dominance of commercial (and merchant) banks.
Significantly, in recognition of the dearth of financial services available to the impoverished and low-income earners, the Central Bank of Nigeria (CBN) over the last two decades made various attempts to enhance the delivery to financial services to the Nigerian populace.
However, this alternative lenders and financiers have gained momentum with the activities of financial technology in recent years.
While speaking on the Nigerian payday loans industry, analyst with Agusto & Co, Osaze Osaghae, explained that payday loan was also referred to as salary advances, payroll loans and payday advances.
“These loans are designed to meet the short-term needs of an individual until the next payday, when the loan is usually repaid in full,” he said.
Despite an active adult population of 99.6 million in 2018, he said only 39.7 per cent were banked by registered financial institutions.
He noted that only eight per cent of the total active population was formally employed, considerably lower than other major nations in sub-Saharan Africa.
“Since then, these short-term, high-cost loans have risen in popularity across the globe, particularly in first world countries,” he said.
Borrowers often sought these loan facilities to pay recurring bills including utilities and rent as well as expenses such as school fees, medical bills and bills needed to be settled before the next payday.
These loans typically attracted high interest rates ranging from three per cent to six per cent a month, which reflected the risks associated with the average salary earner, as well as the absence of collateral requirements, the report said.
Another report by Agusto titled: Rising prominence of payroll lending activities in Nigeria, said that core players in the payday lending such as Renmoney, Credit Direct and Zedvance had grown business volumes over the last few years, due to the overall gap in the supply of short-term microcredit
Part of the report read: “In contrast to traditional lenders, industry operators provide customers with a quick and convenient process for obtaining loan facilities, with disbursement typically within 48 hours of submitting all required documents or the meeting of all conditions”.
Nigeria’s biggest bank, Access Bank, has also launched salary advance scheme. The Access Bank PayDay Loan/Salary Advance Scheme is also making credit available to borrowers fast, without stress and collateral.
Launched in collaboration with Remita, the product was created to make loans available to salary earners irrespective of what bank their salary account is domiciled. Such offerings are intended to enable the customers meet their financial obligations especially in difficult times.
For instance, a study released by Stutern showed that the average Nigerian graduate earns less than N50,000 as the first salary. Another research by Salary Survey disclosed that the average Nigerian salary is N658,324 annually – basically N54,000 each month. Many eagerly await their paydays, especially when it is important to access quick cash.
Besides, business owners also breach contracts with their employees by delaying the payment of salaries while expecting them to continue performing optimally at their jobs. This, unfortunately, leads to work-life imbalance that affects delivery and Key Performance Indicators (KPIs).
While it can be agreed that salary workers in Nigeria do not earn enough, every person hopes to address personal financial issues timely and appropriately with as little hassle as possible.
Victor Etuokwu, Access Bank’s Executive Director, Personal Banking, said: “This offering is unique given that the beneficiaries do not have to be existing customers of Access Bank but hardworking salary earners who now have the opportunity to obtain instant loans without a guarantor or stress.
