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Digital lenders in Nigeria are currently worried over recent moves by the Federal Competition and Consumer Protection Commission (FCCPC) to regulate their interest rates.
Following complaints by Nigerians that the interest rates of many digital lenders, popularly known as loan apps, are too high, the Commission, through its Digital, Electronic, Online, or Non-Traditional Consumer Lending Regulations, 2025, said it will now monitor the rates.
“The Commission shall periodically monitor interest rates for services of consumer lending, and ensure rates are not exploitative and inimical to consumer interest. Such monitoring shall be made in compliance with provisions of Guidelines developed pursuant to Section 163 of the Act,” the FCCPC stated in the regulation recently released to all players.
Factor of risks and cost
This provision in the regulation has, however, not gone down well with the lenders, who insist that interest should be determined by the cost of funds and the level of risk.
Speaking with Nairametrics, the President of the Money Lenders Association (MLA), Mr. Gbemi Adelekan, said this aspect of the regulation may disrupt the flow of the highly risky digital lending market.
“This is a difficult area because for us, the interest rate is determined by the credit risk, market risk, and cost of funds.
“Unless the authorities are planning to give us funds to be able to operate and bring more people into the ecosystem in terms of financial inclusion, I don’t know how this will work,” he said.
Borrowers’ complaints
Long before now, Nigerians patronizing digital lenders have been complaining about their rates. While many still go ahead and take the loans, some end up not repaying, citing the high interest rates.
In one instance, a digital lender offered to lend a customer N2.5 million with the condition that she would repay N268,230 every month for 24 months.
This means she would pay a total of N6,437,520 at the end of the deal—N3,937,520 as interest. This represents about 198% interest per annum.
- Speaking on the high rates charged by digital lenders, Adelekan said they are a reflection of the costs of funds and technology.
- According to him, many of the digital lenders, with the exception of those operating with microfinance bank licences, do not receive deposits like banks. Hence, they have to borrow money from banks to run their businesses.
- He added that loan app companies also face high risks because most of the people they serve are at the bottom of the pyramid, often without steady sources of income.
Lenders back actions against unethical practices
Adelekan, however, commended the FCCPC regulation for prohibiting apps from accessing contact lists, pictures, and transactions of their customers.
According to him, some lenders have been misusing such access to harass customers and engage in other unethical practices.
“It’s a good step in the right direction for the ecosystem,” he said, adding that this would force many lenders to start using the credit bureau.
He also noted that the group supports the regulation that mandates lenders to clearly state the conditions of their loans, including tenor, interest rates, and repayment plans.
Commenting on the regulation, the Founder of Lendsqr, Adedeji Olowe, said the new rules show that the FCCPC is no longer experimenting with digital lending regulation.
“Whether you love it or hate it, digital lending isn’t a side hustle anymore. It’s part of the financial system, and it’s going to be treated that way,” he said.
What you should know
The new regulation builds on the Limited Interim Regulatory/Registration Framework and Guidelines for Digital Lending, 2022, which made it mandatory for all digital money lenders in the country to be registered.
Under the guidelines, all loan apps in the country are expected to register with the FCCPC. As of May this year, Nairametrics reported that the number of registered digital lenders had reached 425.
- Despite the registration drive aimed at sanitizing the digital lending space, cases of harassment and defamation of borrowers have remained rampant. Sanctions for such acts include delisting or removal of apps from the Google Play Store.
- However, with the new rule, the FCCPC is going tougher on perpetrators of unethical practices in the digital lending market.
“Any person or undertaking found to be in contravention of the provisions of these Regulations shall be liable to sanctions, which may include fines, suspension of operations, delisting of registration, or revocation of approval,” the regulation states.
Specifically, it adds that an individual guilty of breaching any of its regulations could be fined up to N50 million, while a company could face N100 million or 1% of its previous year’s turnover, whichever is higher.
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