As an increasing number of Nigerians rely on consumer credit to survive a harsh economy, it has become important to create a robust loan recovery ecosystem to prevent delinquency and primitive collection strategies such as naming and shaming.
This is the position of Chief Executive Officer and Co-founder of Mida Technologies, a loan recovery and recollection company, Mayowa Anibaba.
Today, many financial institutions have gone under, having been crushed by the weight of delinquent loans. The impact of non-performing loans can result in a loss of confidence in financial institutions.
At the macroeconomic level, financial institutions with high loan exposure levels can neither give further loans nor borrow to sectors and industries that require funding. Thus, the entities are forced to seek other sources of funding with a higher cost of capital.
Consumers are forced to pay higher prices for goods and services since the manufacturers will pass on the increased costs of production and services to them. This feeds into inflation and reduces economic growth.
According to the latest Economic Report of the Central Bank of Nigeria, total consumer loans stood at N4.12 trillion as of December 2024. A breakdown of this figure shows that personal loans accounted for N2.39 trillion, while retail loans were valued at N1.73 trillion.
As Nigerians grapple with reduced purchasing power, many citizens resort to loans to meet pressing needs. Businesses grappling with a contracting economy also resort to lending to cushion the impact of rising operational costs.
To address the challenge, the government is promoting a credit economy through the establishment of the Nigerian Consumer Credit Corporation (Credit Corp), which aims to promote consumer credit access to working Nigerians.
With increasing loans, however, comes certain risks – the biggest of which is default. According to the World Bank’s Nigeria Development Update report, the non-performing loans to performing loans ratio increased from 0.6 per cent in October 2023, to 5.1 per cent in October 2024.
This figure is slightly over the CBN recommended threshold of 5 per cent for deposit money banks. The 2024 financial statements of seven Nigerian banks reveal that non-performing loans surged from N1.21 trillion in 2023 to N1.57 trillion as at the 2024 year-end.
Measures such as loan write-off, loan purchase and application of global standing instructions (which allow financial institutions to directly debit recoveries from bank accounts of defaulters) have been taken in a bid to curb the high non-performing loans malaise. Several measures are required to further reduce the non-performing loan trends.
One such measure is the establishment of loan recovery and recollection companies.
The CEO of Mida Technologies believes financial institutions should explore the path of outsourcing their loan recollections and recoveries to specialists, noting that financial institutions should focus on their core mandates of providing financial services and introducing innovative products to the benefit of numerous customers.
“Data from the CRC Credit Bureau, one of Nigeria’s credit bureau agencies, reveals that over 41 million Nigerians have taken loans from various financial institutions. And in the last quarter of 2024 alone, over N470 billion was disbursed as loans.
“With an inflation rate hovering around 24 per cent, it is plausible that the loan collection rate will be on the increase as people take out credit to solve various challenges. As the loan portfolio increases, so does the risk of non-payment. Loan recollection and recovery companies like ours are best equipped to recover delinquent loans,” Anibaba said.
Chief Operating Officer and Co-founder of the company, Adija Uzondinma, also said the risks and challenges of loan recoveries are very high and necessitate a tech-driven and empathy-laden approach.
According to her, incorporating artificial intelligence (AI) into the company’s processes has enabled Mida Technologies to unearth algorithms and behavioural patterns as well as proprietary models which have aided the company in achieving a high level of delinquent loan recoveries. She, however, added that the company’s main strength lies in its empathetic approach to loan recovery.
“Loan recovery departments and companies are traditionally viewed as enforcers of the recollection mandate. However, our approach at Mida is more advisory. We engage the delinquent debtors to assist them in paying back their loans, while also reabsorbing them back into the financial ecosystem,” Adija said.
The company’s Chief Revenue Officer, Oke Egbi, believes that companies like Mida Technologies hold the key to unlocking the opportunities in Nigeria’s lending ecosystem. She said recovering close to 50 per cent of the non-performing loans would unlock an immense amount of capital, which has the capability of boosting the country’s economy.
“We have only just begun to scratch the surface with regards to the possibilities of the lending ecosystem. Over 90 per cent of the credit facilities being issued by lenders are short-term consumer loans which are used to address short-term challenges such as school fees, house rent, and consumer electronic purchases, among others. Patronage of long term facilities like mortgage and car loans remain low for now. Improvement in delinquent loan recoveries will further boost the confidence of lenders to boost their lending portfolio in those sectors,” Oke said.
