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Payday loan market in Nigeria 2021


PayDay loan

During the current pandemic situation and expected growth of the microcredit industry in developing countries of Asia and Africa, the industry of payday loans becoming more and more popular. And Nigeria is one of the fastest-growing countries in this regard.

As statistics shows, 24% of adult Nigerian citizens applied for payday loans in 2020 even though the percentage rates of these loans are much higher than rates of traditional bank loans. So why the payday loans are superseding bank loans?

There are different benefits that banks lack and payday loans grant.
First of all, payday loans are an option for people with a poor credit history. Most providers of traditional finance options reject any high-risk applications. People who might have struggled with their debts before or even people with no credit history at all can be included in the high-risk category. Microcredit organizations perform exceptive affordability checks but have compensated for the high level of risk by charging higher levels of interest than traditional lenders. As a result, they often accept loan applications that other lenders will not.


Also, one of the most significant advantages of payday loans is that they don’t take much time to process. In a modern digital world, if you have access to the Internet, it takes you a couple of minutes to apply for a payday loan and receive money. A reputable lender can approve your application within moments and transfer the requested amount directly to your account. And it is really helpful when you use payday loans as a tool, whose main purpose is to cover unexpected and emergency losses. If your car breaks down or the refrigerator needs replacement, there is a chance that you will not have time to wait for a traditional loan to be approved.

But there are currently no restrictions on the use of loans and it’s also one of the PDL benefits. And, according to the experts, 7 out of 10 Nigerian borrowers use their payday loans to cover basic expenses such as rent and utility bills. This is not surprising, because more than half of borrowers in Nigeria have difficulty paying monthly expenses.

These features are the main reasons why PDLs are becoming more and more popular not only in Nigeria but all over the world. And with the growing popularity of the PDL industry, more and more microcredit organizations, especially in developing countries, face their main problem. And this problem is the lack of funds. That is impossible for those organizations to fully cover their loans by themselves. At first, PDL providers could rely only on the funds provided by traditional banks. And because of that, a banking monopoly was established and banks for a long time dictated funding conditions that were advantageous only for them.
Now this situation has drastically changed. Organizations that had previously funded the financial sector, as well as other independent investors, would sooner or later have had to turn their attention to such a promising and profitable industry. Every day the number of possible funding sources for microcredit organizations rises and the financing terms they provide are far more attractive than those of traditional banks.


One of the main funding providers for the PDL industry in Nigeria is Hoffman Graham. This company is located in London and it is one of the most famous organizations in this field. They fund the applications of a significant number of PDL providers all over the world, and they show their great interest in working with microcredit institutions in Asian and African countries.
Nigeria was one of the first African countries that Hoffman Graham paid attention to. And the impact of this company is easily visible now. At this moment, PDL providers in Nigeria are, to a large extent, dependent on funds provided by foreign donors and impact investors. 7 out of 10 Nigerian biggest PDL providers used the services of Hoffman Graham at least once. And 4 of them are currently using Hoffman Graham as their main source of funding.

Hoffman Graham developed their own scoring system and created a unique software based on AI (Artificial Intelligence) and ML (Machine Learning). This software automatically evaluates applications from PDL organizations, determines the level of risk, and issues a verdict on refusal or approval of funding.

The benefit of this approach is the overall services quality improvement. The algorithms of the Hoffman Graham software use thousands of indicators to analyze the PDL applications and dismiss those that do not meet the quality requirements. It results in a decrease in the cases when the loan has not been repaid, not to mention the resolution of the financial issues.
The majority of Nigerian PDL providers benefit from being sponsored by foreign funders. Overall, the presence of foreign funding appears gave a significant boost and allowed to significantly raise standards among institutions in this sector. The shift away from strict financing conditions offered by traditional banking systems allowed PDL organizations to use significant amounts of money to develop their networks, improve service and marketing quality, and implement technological innovations that have long been in use in developed countries. The platforms like Hoffman Graham directly impact the development rates of the microfinance industry in growing countries. And in the long term, the influence of these organizations will bring significant positive changes to the PDL industry in developing countries.


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