Concerns raised the other day by Chairman of the Alliance for Economic Research and Ethics, Dele Oye, on the growing burden of high-interest digital loans in the country deserve prompt attention from the Central Bank and other regulatory authorities. The unfettered operation of the digital apps is certainly compounding the yoke placed on vulnerable financial credit-seeking Nigerians, thus leading to the trapping of these impoverished persons in a cycle of debt.

The Nigerian economy is currently going through the effects of the economic reforms of the federal government. This is understandable as the pattern of many post-economic reform periods globally. Hence, the various economic classes in the country are going through a series of challenges, more especially the very low-income earners who have resorted to seeking reprieve through various channels, of which seeking credit through the online digital platform is one of them.

Many of these digital lending platforms are also part of the hustling crowd, with some of them out to take advantage of the low-income informal sector operators. Others, however, though with good intentions to assist in alleviating the suffering of the impoverished Nigerians seeking credit to finance their micro and small businesses, charge exorbitant interest rates that are really suffocating. This should really attract the attention of the regulatory authorities in the financial services sector, especially the Central Bank of Nigeria (CBN).

The observation by Oye indicates that the interest rates charged on these credits are as high as 300 per cent on their digital lending platforms. This is indeed sacrilegious. This practice is both inflationary as well as poverty-inducing, given that these high interest rates place a huge debt burden on already poor Nigerians who are thus consigned to a perpetual life of struggle, from which they hardly come out. For them to aspire to service the credits, for which they get at very high interest rates, they have to jerk up the prices of their products financed with such high cost of funds, such that prices increase for most related goods by the multiplier effect. That is why the CBN must intervene in this ongoing malaise in the financial services sector.

There is a need for the financial sector authorities to enforce some form of interest rate caps as well as consumer protection measures to prevent exploitative lending practices within the sector. The growing incidence of digital lending platforms has been exacerbated by the growing and expanding nature of the country’s telecommunications industry as well as internet penetration over the past few years. It can be recalled that growing private investments in Nigeria’s telecommunications sector have led to growth in the number of telephone lines from about 500,000 before the onset of the GSM revolution in 2001 to over 200 million presently. Currently, telecommunications is no longer simply an industry but the foundation upon which the country’s digital future is being built.

The very poor have not been left out in this development in that they are, alongside others, having access to telephone and internet services through which digital lending platforms have become attractive to individuals and small businesses even in rural areas, where many scams and exploitative activities are carried out by many providers of various services. Hence, the poor who have become participants in this online trading and economic processes have become very vulnerable and thus need protection.

This leads to the issue of social security if these impoverished citizens become irredeemably poor and would need some appropriate social safety nets, leading to an enhancement of social welfare. In Nigeria, this right to social security has remained an illusion to the majority of the population, as most of them operate in the informal sector without specific laws to protect their rights, as most of these laws apply to workers in the formal sectors of the economy. Though the right to social security is recognised in Section 14 (2)(b) of the 1999 Constitution of the Federal Republic of Nigeria, providing that “the security and welfare of the people shall be the primary purpose of government,” it has invariably remained aspirational and hence not a binding legal commitment.

However, while these interest rate gaps could be ameliorated by the authorities, the basic issue is that almost 50 per cent of Nigerians are multi-dimensionally poor and living below the poverty line of about $3 per day. The basic fact is that poverty begets more poverty as the poor buy basic food items costlier than the rich and the middle class, who buy their basic needs in bulk, while the very poor buy in pieces, at retail levels and thus pay more per unit than the rich. Hence, as clearly indicated in the statement by Oye, the fundamental disadvantage of low-income individuals is the inability to access economies of scale given that wealthier households purchase commodities in bulk.

Aside from the euphoria of protecting the poor through a strong and justiciable social security arrangement, the operation of the poor in the economic landscape needs to be protected. They should be able to have access to credit at reasonable interest rates. They also need to be able to get access to credit easily through the microfinance banks at reasonable rates; and the support of the CBN on these issues is very critical.

Sadly, the poor have been at the receiving end of government economic reform programmes. Charging a huge interest rate of 300 per cent on the digital platform should never be heard of at all in Nigeria. The authorities should fish out those who are involved in this and apply appropriate sanctions to ensure that the financial lending terrain is adequately sanitised.