The indiscriminate activities of unregulated lending platforms in Nigeria, popularly known as loan apps, have earned them the name — loan sharks. These companies often operate outside the legal, financial ecosystem and are known to prey on vulnerable individuals and small businesses, trapping them in a cycle of debt, frustration and anxiety.

Many have faulted them for being guilty of charging exorbitant interest rates and engaging in bad practices such as character defamation and invasion of their client’s privacy. As we dive in, let us explore the perspective of someone who has experienced firsthand the menace of loan sharks in Nigeria.

Mr Ola, a resident of Lagos and a supervisor in a privately-owned company, had this to say: “In 2021, I had a little emergency that I needed immediate cash to offset. When I couldn’t get someone to borrow from that moment, I decided to try this loan company.

“I have always seen their adverts online. So, I downloaded their mobile app and took the loan from this company with confidence that I will pay back before the stipulated time. As expected, the time came and I was able to pay back the loan I took plus the interest.

“But as soon as that was done, I realised I had immediately run out of cash as I am a low-income earner and the interest I agreed to pay on that loan was around 65 per cent.

“Almost immediately, I found myself in need of cash. So, it began! I took another loan from a different loan app and as expected again, I didn’t have the money to pay back on the date and just like that, I started receiving calls from this company threatening to destroy my name and everything I have ever built because they have access to my photo gallery, text messages and contacts.

“In that panic and being unsure of what to do, there were other loan apps coming to my window to offer loans of more that 65 per cent to 75 per cent interest, loans like ₦32.000 to pay back ₦46.000 in a duration of seven days.

“Some even went as far as sending DMs to my WhatsApp; how they got my contact, I don’t know! What did I do? You guessed right, I took their offers, and I started taking from company A to settle company B and so on.

“Suddenly, I realised my income could no longer match up with my debts. That was how it exploded in my face and my entire life was turned into a furnace overnight. Messages from these predators started flying within my contacts with pictures of me.

“Some would call my contacts to insult them and say all manner of defaming things claiming that I used them as guarantors, which I never did. Some even went as far as telling my contacts that I was a rapist and a murderer who was on the run. It was a colossal disgrace, I can tell with all sincerity.”

Mr Ola’s case tells the story of the predatory nature of these loan companies. It won’t be wrong to say these companies are unfit for business with their exorbitant interest rates that far exceed legal limits set by regulatory authorities.

Conversations with a group of people who experienced this menace show that the average interest rate charged by loan apps in Nigeria is around 10 times higher than what financial regulators permit. These lenders exploit the vulnerable financial situations of borrowers, imposing interest rates as high as 80 per cent on a weekly basis, leading borrowers into severe financial distress and bankruptcy.

The absence of strict regulations and oversight allows these lending platforms to engage in crooked practices without repercussions. They mishandle customer privacy by sharing customer data with other loan apps, using such against the customer in the event that the customer fails to repay at a stipulated time.

Not only that, they use intimidation and harassment tactics to enforce loan repayment. Borrowers are subjected to constant threats, verbal abuse and even physical violence, creating an environment of fear and insecurity. Such practices not only violate ethical standards but also undermine borrowers’ well-being and mental health.

Also, the fact that these companies lack accountability further exposes borrowers to exploitation, leaving them without legal resort to address unfair treatment. If all these actions are not addressed, the financial distress faced by borrowers will worsen, and this could lead to social and psychological consequences. It is, therefore, important for the government to step into this issue as a matter of urgency.

The first thing I think the government should do is to ensure stricter regulations and enforcement. Clear guidelines on interest rates, loan terms and debt collection practices should be established, alongside maximum interest rate caps to prevent exploitation of borrowers. A call centre should be created for borrowers to report unfair practices, while regular inspections and audits by regulatory bodies will ensure compliance.

Also, the Central Bank of Nigeria (CBN) should collaborate with financial institutions to expand access to affordable financial services, especially for underserved populations. This can be achieved through microfinance programs, community-based financial cooperatives and responsible online lending companies.

Moreover, promoting financial education and awareness is crucial. The CBN, alongside financial institutions and non-profit organisations, should launch comprehensive financial education initiatives targeting vulnerable communities and individuals. Empowering borrowers with financial literacy will help them make informed decisions, recognise predatory practices and seek assistance when needed.

In conclusion, the prevalence of predatory loan apps poses significant risks to borrowers and the financial landscape in Nigeria. By implementing strict regulations, enforcing legal penalties and promoting financial education, the government can protect citizens and create a healthier financial system that safeguards against predatory practices.

The author works at SBM Intelligence