It was supposed to be a serene and calm worship service in my local community church on a Sunday, but angry police officers entered and took our children’s heads away.‘s department, took her to the community street and, to our regret, gave her to street kids who started beating her to death.
It happened a few years ago. But why did this happen? How come our dear beloved sister found herself drawn to the sweet seductive claws of a loan shark (Uncle Hulk), better known today as a payday lender? Apparently she was desperate and alone. She was a 46-year-old trader with three children who found herself in a need that fueled demand by keeping Uncle Hulk in business. It took God’s intervention and the quick donation of church members to save her that day.
But who would come to the aid of these desperate borrowers? Who oversees or regulates these non-bank middlemen who lend money to helpless creditors with incredible interest rates and unprintable terms.
Payday loans generally work as a collaboration between agents and their linchpin; officers catch people who need money and talk to them about their boss – the pivot – who can lend them at a rate, provided they can repay the day their next salary is received. Unfortunately, these creditors default most of the time in the repayment of the loan, and the real threat begins. Some pillars start raising interest rates from the day of default, while others use all kinds of force to take any land holdings from the creditor in an effort to collect their loans.
You see, all over the world there are traditional and non-traditional financial markets. Some of these non-traditional methods are rooted in ancient practices like Esusu, Ajo, etc. which precede financial regulations.
While increasing literacy and improved technology have helped to regulate and harmonize financial systems, the truth is that there are parts of the world, especially in underdeveloped and developing countries, which cannot are not yet reached by conventional markets.
The stringent practices of financial institutions, service failures, insufficient turnaround times, communication problems and poor relationship management have contributed to the sustainability of these unconventional financial systems.
Young people like Akin, who even prefer their services based on certain shortcomings long to be corrected by commercial banks, said: “I urgently needed money to pay for my programme and I needed it in 48h. The bank will not give me because it would exceed my Debt Service Coverage Ratio (DSCR). So I borrowed and repaid. Yes, the interest was high but the need was greater, ”he said., when asked about his continued patronage of payday lenders.
Interestingly, the operations of these lenders have gone viral apart from unconventional methods; there are countless institutions that provide loans and credit facilities without proof of employment. Institutions charge up to 40% and some up to 5%, but you have to be a taxpayer or upload supporting documents, personal bank details, guarantors, etc. to access these loans which are also usually very small amounts.
“They also have a form of guarantee. They often ask for post-dated checks and prefer employees. In the event that you cannot pay, your check is presented. If it bounces you might lose your job and nobody likes it, but the reason people turn to these guys is how quickly they react,Says an economist who spoke with am business on this point.
Asked about his opinion on the activities of payday lenders, he replied: “I don’t particularly approve of them, but their existence is necessary to reach the unbanked. Ultimately, banks are forced to innovate and tap into this market by offering similar products.
The Central Bank of Nigeria (CBN) has also started licensing some of these other financial institutions like Credit Direct. “Licensing helps keep these institutions under regulation, but a greater proportion of these lenders are unregulated and there is little the CBN can do,” an official said. with a good knowledge of the question.
“It’s a purely personal matter and people frequent them by choice. It’s like CBN trying to regulate me by lending money to my friend and charging him interest. It’s really none of CBN’s business. People for whom this creates a problem are banks because these guys are basically competing with the banks doing the same as the banks and thus reducing the bank’s income margins and taking potential customers,“, said the official.
Meanwhile, the solution to this need for money known to be man’s greatest desire after salvation is starting to be further explored by Nigerian banks and other financial institutions, further exploration of this need could. however lead to capture the teeming numbers of Nigerians disturbingly unbanked population.
Today, banks like Access and Sterling are leading the pack in this type of service delivery with their service solutions such as Payday Loan and Specta respectively.
Access’s salary-based instant loan product is intended for employees of organizations that meet their risk acceptance criteria. The bank charges an initial fee of of them percent lump sum and an insurance of 0.15 percent of the loan amount is taken upon disbursement of the loan while an interest of Three flat percent is taken at the time of liquidation, with a maximum term of 31 days or on payday whichever comes first.
For Sterling, the bank has developed a platform that provides access to loans in five minutes with minimal requirements. The bank announced last Friday that a huge billion naira had been loaned to employee members of the lending platform’s pre-approved community.
“Essentially, if you are employed in a company that has joined the Specta platform, you can access a loan of up to 1.5 million naira and pay out over a period of up to 24 months. like as long as your monthly repayment does not exceed 33.3% of your monthly salary,”Said one of the bank’s employees am business. As the payroll accounts of the beneficiaries are domiciled with the bank, a standing repayment instruction is placed on the emergency account.
These solutions although laudable, still need to be refined, the bouquet of opportunities is still to be filled and to be extended to all horizons of widespread companies and specific to the Nigerian environment., especially the informal sector.