Consumer credit, particularly from licensed money lenders, is proving to be a game-changer for Nigeria’s nano, micro, small, and medium enterprises (NMSMEs).

While traditional banks often overlook this sector, these lenders are filling the gap by providing accessible and collateral-free loans. According to industry players, this has been instrumental to the current financial inclusion and entrepreneurship.

The Central Bank of Nigeria’s data underscores the growing significance of personal credit, with over N3 trillion disbursed as of January 2024. Under the purview of the Money Lenders Association (MLA), regulated by the Federal Competition and Consumer Protection Commission (FCCPC), licensed money lenders have played a pivotal role in this growth.

Their numbers have surged from about 100 in 2022 to nearly 300 in 2024, reflecting their increasing economic impact, as highlighted by experts and players. They offer quick disbursements, flexible repayment terms and relatively affordable interest rates.

This has made them a preferred choice for many NMSMEs struggling to access traditional financing. According to the World Bank, money lenders, including digital money lenders, have contributed to increasing financial inclusion in Nigeria, with over 70 per cent of adults having access to financial services, up from 30 per cent in 2011.

However, these operators require regulation that combines a robust legal framework and technology with effective enforcement against illegal operators.

Gbemi Adelekan, president of the MLA, stated that licensed money lenders provide credit to artisans and micro-businesses and to previously financially excluded individuals across the country.

He emphasised the need for consequences for borrowers who fail to meet their loan commitments.

According to him, better protection for both lenders and borrowers could be achieved through comprehensive regulations and enforcement, ensuring a good credit structure in the economy.

“Money lenders have stepped in to fill the gap, using technology and alternative data sources to support businesses, including Nano businesses, without collateral.

“However, we need government support in terms of recovery due to the high risk involved in supporting NMSMEs,” he said.

Mr Adelekan noted that for money lenders in Nigeria to continue thriving, they must embrace digitalisation, develop risk management strategies and offer flexible repayment terms.

He added that lenders must also build strategic partnerships for growth and support.

Babatunde Akin-Moses, managing director of Sycamore, explained that the growth of the Fintech sector, especially the lending space, had improved funding access for NMSMEs.

He highlighted the increasing relevance of money lenders as go-to sources for small businesses and individuals who might not meet traditional financial institutions’ credit requirements.

Mr Akin-Moses emphasised the need for a reliable and equitable credit system, calling for cooperation among stakeholders, lenders, borrowers and regulators to ensure a fair process.

He predicted that the next decade would involve rebuilding the inflationary economy and expanding growth.

“Capital will be needed for this, and the best providers for everyday individuals and small businesses will be money lenders. The process will be more efficient if lenders adopt technology, structured regulations are in place, and consequences for credit default are enforced,” Mr Akin-Moses said.

The FCCPC has been regulating the money lending ecosystem, shutting down illegal lenders who use unethical methods to harass customers. Also, the money lenders association continues to educate the public on avoiding illegal loan apps, urging the government to support the industry’s survival, which appears promising with opportunities for sustainable growth, innovation and financial inclusion.

Meanwhile, many NMSMEs prefer these loan apps for their speedy execution, non-collateral funding, affordable interest rates and flexible repayment plans.

Oluwakemi Adebayo, an egg dealer, noted that quick loan disbursement had helped her business grow. She said that even in cases of default, providers had been understanding of her business challenges.

Babatunde Oguntayo, CEO of Bow Oil, said that the apps provide significant loans, sometimes up to N30 million.

Given the lengthy processes with traditional banks, he stressed that such an opportunity was crucial.

Jonathan Falola, CEO of Telematics Systems Ltd., urged NMSMEs to utilise these loan facilities to upscale their businesses.

(NAN)