Over a decade ago, the idea of an instant lending product in Nigeria was a dream most people thought unrealistic to pursue. The average time it took to process a personal loan was up to three weeks and sometimes even longer as was the time it took to validate a customer or underwrite a loan using manual processes which were prevalent in the banking industry at the time.
As a result of their limited resources, Commercial Banks in Nigeria prioritised creating high ticket loans for corporates and high net worth individuals over micro loans for individuals and small businesses since it took similar time and resources to process both the high- and low-ticket loans.
The high inflationary environment combined with flattish growth in household disposable income in the country continued to set the stage for a massive credit boom waiting to be exploited though there was no way to take advantage of such opportunity at the time, especially by using manual processes.
Without doubt there was a need for answers on why no one was able to take advantage of the credit opportunity. How can such a large opportunity exist without a solution that encourages scale in a sustainable and efficient way? The Central Bank of Nigeria attempted to solve this in 2005 through the creation of Microfinance Banks as it attempted to encourage financial inclusion and the proliferation of credit in Nigeria. Microfinance Banks were expected to make access to credit available for individuals as well as Micro, Small and Medium Enterprises but with similar processes to that of Commercial Banks, the Microfinance Banks though successful in providing basic banking services to micro and small businesses made very little in-roads in driving credit penetration across the country.
In the last few years, this narrative has changed as the technology required to encourage access to affordable and relevant financial products especially in the areas of payments, transactions, savings, insurance and credit are now readily available to financial service providers thanks to the influx of innovative FinTechs in Nigeria over the past decade
The following are some of the ways digital technology has in the last few years reshaped the lending ecosystem in Nigeria.
Smartphone Revolution and Widespread Internet Adoption – Digitizing Loan Application
According to data collated from the Nigerian Communications Commission (NCC), there were about 2.3 million registered phone lines in the country in 2002. This represented a mobile phone penetration of 2% in Nigeria. Over the next 5 years, the number of mobile phones in the country reached 42 million phones in 2007, representing almost 20 times growth in just a short time as the cost of sim cards and phones became more affordable for the average Nigerian. By the end of 2007, the mobile phone penetration in Nigeria had jumped to 29%. 2007 is considered as the year smartphones went mainstream and the true internet experience could be enjoyed by phone users in a similar manner that was obtainable using computers. Between 2007 and 2022, registered phone lines had grown from 42 million in 2007 to 209 million, representing 98% mobile phone penetration in the country. Today, virtually everyone can be reached by a mobile phone. Smart phones have helped to connect the world in ways never thought possible.
Out of the 209 million phones in Nigeria as of August 2022, about 152 million mobile phones were connected to the internet, giving users unlimited possibilities to accessing any type of digital offering
available through the internet. With internet accessibility for almost every adult and the ability for lenders to create and activate their digital channels, the process of digitising loan applications was solved. This means that anyone, anywhere with a loan need can with a push of a new button request for a loan and this request will automatically hit the digital lending system of the loan providers.
Smartphones will not be considered “smart” without providing their users access to the internet. There was the need for access to affordable internet to as many adults as possible, thereby making digital interactions between applicants and lenders possible on a large scale. This was achieved by the success of the telcos in providing affordable high speed internet data bundle to Nigerians
Customer Identification – Digitising the Customer Onboarding Process
In the past, loan applications required processes like filling a form, physical address verification, and physical customer identification. However, with the introduction of the Bank Verification Number (BVN) by the Central Bank of Nigeria (CBN), which assigns a unique number of every banked customer in the country for easy identification, the process of customer onboarding became simpler and easier for lenders to verify a customer’s identity at the point of making a loan request. This digital process of verification and documentation was acceptable to regulators which made things a lot easier for lenders and allowed for more innovation around customer onboarding. Without doubt, this has significantly helped in transforming the lending industry in the last few years with millions of Nigerians now having access to credit in minutes. Several digital identity verification companies have sprung up in recent years, helping to increase service accessibility and encourage innovation amongst competitors to the benefit of lenders and their customers alike.
Application Programming Interface (API) Integrations
Simply put, an API allows two independent systems to talk to each other easily. And as simple as it sounds, it has created a world of difference to the lending ecosystem in Nigeria. For example, the ability for lenders to digitally request for a credit report on a loan applicant from the Credit Bureau or request for the customer’s bank statement from the bank without any physical visitation completely transformed the underwriting process for lenders. Reports which would have been obtained in physical form days after making the request were now available in digital form barely seconds after an API request. Smart lenders began to build algorithms that could analyse the bank statement and credit reports in seconds and provide instant recommendations to the credit analyst on whether to accept or reject the customer based on his or her credit score. From the credit reports, bank statements and other data points that help provide guidance on the credit worthiness of an applicant being manually reviewed by credit analysts, this process is now increasingly being digitised as the underwriter’s decisioning process is now being replaced by lending algorithms and machine learning decisioning. API Integrations have also fostered partnerships between organisations in the lending value chain. For example, embedded finance offerings are made available to millions of customers today as a result of the seamlessness of two independent systems being able to talk to each other today for the purpose of achieving a defined objective.
Advent of Payment Infrastructure Companies – Digitising Disbursement and Collections
In the past, the process of loan disbursement was manually done by the lenders and most borrowers were required to submit post dated cheques as a means of repayment of loans. Today, loans are disbursed instantly once the customer accepts the loan offer from the lending institution through the digital channel. With the help of successful payment infrastructure readily available in the Country, the loan repayment process can be automatically set on a customer’s bank account once he accepts the loan offer.
Conclusion
Over the last decade, the entire lending value chain from loan origination to loan repayment has now been fully automated, enabling lending companies today do what was previously thought impossible. The impact of digital technology in reshaping the lending ecosystem cannot be overemphasised. Millions of Nigerians are now getting banked from the comfort of their homes, millions of first-time borrowers are now able to access loans in seconds and operational efficiency in the lending industry has been transformed in ways no one would have believed just a few years ago. Today, opportunities to do things differently for all lenders is limitless if they can properly leverage the power of data, technology, and partnerships. The winner of tomorrow’s lending industry will be determined by how well they manage their digital transformation journey today.
About Chukwuma Nwanze
Chukwuma Nwanze is an experienced board member, transformational leader, versatile and well rounded business, and financial manager with over 19 years’ experience in Financial Control, Consumer Finance, Strategy Formulation and Planning, Business Process Development, People and Performance Management and Systems Development and Integration.
Over the last 19 years, Chukwuma has operated as a Chief Financial Officer (CFO) for 6 different organisations spanning across Consumer Lending, Consulting, Oil and Gas and Financial Technology markets.
He currently serves as the Managing Director (Designate) of Credit Direct Limited, Nigeria’s premier consumer lending finance company. Since joining the company in 2012, Chukwuma has helped the firm in consolidating its market share within the industry and strengthening its financial position.
