The Absence Of Customer Data Is Fragmenting The Micro-Lending Experience in Nigeria

Within Nigeria’s bubbling fintech space, micro lending is arguably one of the hottest verticals at the moment. There are a variety of products/solutions all aiming to do one thing: make it easier for the average literate Nigerian with an internet connection to access small-bill credit.

If you have seen any marketing from these startups, you’ve likely seen something along the lines of “No collateral needed!”, “Get a loan in minutes!”, and so on. While those lines may not necessarily be false, they don’t necessarily tell the entire story either – at least not in my case. I tried to get a ‘medium’ sized loan of N650,000 recently and this is what happened.

Looking for information

Perhaps the first thing I discovered was just how different almost every micro-lending platform is from the jump. Paylater, for example, only has an Android app and you can’t apply for loans through its website. RenMoney on the other hand will let you get to a certain stage online but the rest of the process is offline (you have to scan documents and fill forms) more on this later.

The first thing I did when I decided to take a loan was look for the best possible deal. This deal would involve three things – interest rate, payment period and monthly deductible. In other words, the best deal would be one that had a decent interest rate, monthly deductible rates I could live with and repayment period long enough to accommodate surviving as a bachelor in Lagos (before I end up under a bridge begging for money).

It is interesting how Nigeria’s micro-lending platforms approach information around these three metrics I’ve listed. Some had more detailed information about their process than others and others were just vague. Nevertheless, a few Google searches will give you decent information about any service (unless you’re not as smart as I am).

After window shopping, the problem became deciding which micro-lending platform had the easiest process. I don’t exactly have a lot of time on my hands – I needed something that would not require me to leave the office in the middle of a work day or handle/transmit physical copies of anything.

Now this is unique to me because the dynamics of my personal life vis-a-vis work will most likely be different from that of any other person. That said, I was able to find all the preliminary information I needed relatively easily.

Different playbooks

Back to this thing about micro-lending startups in Nigeria employing wildly different models in how they position their product. Some of them have loan tenures that do not go beyond a month, others have caps on the size of loan principals and the rest have some kind of differentiation in terms of the documents they require. Even payment after your loan has been approved is different.

For example, at the point of disbursement, RenMoney will pay the full principal into your account and calculate its fee and interest into the total sum you will pay back while FINT will deduct its charges and send you the balance. So, if you earn N200k/month and want to borrow N600K for 6 months from FINT, you’ll receive N545K and pay back N709K (18% interest) over the time period. In comparison, RenMoney will pay the full N600K into your account but you’ll be paying back around N756K (26%) over the same period.

Also, there is the processing methodology. Paylater, for example, uses different metrics from RenMoney in determining who it grants loans to. Also, using the same data, I only got a loan offer of N20K from Paylater while RenMoney (and other platforms I tried) offered between N500K and N580K on the desired N650K I requested for.

Caveat: I tried Paylater using a colleague’s phone (I don’t have an Android device) so that could have skewed Paylater’s algorithm somewhat.

The process

With all the many requirement, steps and processes out of the way, I settled for RenMoney because they seemed to tick all the boxes I mentioned earlier. This is where things got interesting.

I started by filling the online application on web (to the best of my knowledge RenMoney does not have an app) which was no hassle at all although it was incredibly slow (could be internet or RenMoney’s backend). Until I got stuck at the point where I had to upload a utility bill. The problem with this is this: we use prepaid meters in my house and pay for electricity online. Also, my neighbour who handles the waste bill had travelled with his family and wasn’t going to be back for some time.

I abandoned the application that day and in the evening I got an email from a RenMoney representative – Bola (not her real name). I responded to the mail to explain my predicament and she called to get a better understanding of the problem. The most interesting thing she told me (apart from the solution to my problem) was that the process didn’t end online and there was some offline element to completing the loan application process. I found that quite odd.

Moving on, Bola then sent me a form to print out, fill and then scan back to her (I hated this). She also warned me that the information I was putting on the form must match what I had already uploaded in the online application (before I knew about this form). After filling and scanning the form back to her, I got another email with a loan offer of N580K, which I printed out and filled/signed before scanning back to Bola and her colleague. Later that night, I got a payment alert and that was it.

So what have we learnt here today?

Micro-lending is still quite fragmented in Nigeria, mostly because of the information bottlenecks (no central database, BVN is still a silo system of some sort, address system is outdated etc).

Perhaps, with better access to customer information, I suspect that most platforms will be able to design better processes around their products that drastically cut down the loan application and processing time as well as a much more harmonised approach for the entire segment.

That said, cultural/societal nuances also have to be taken into consideration in designing these processes to create a quick, seamless way for the average literate Nigerian to access small-bill credit. As it stands, Nigeria’s micro-lenders are doing the best they can with what they have.