Can family lending boost financial inclusion in Nigeria?

Lending amongst family and associates is integral to the Nigerian financial panorama, significantly in the casual sector the place entry to formal financial companies is proscribed. 

Fig. 1: The charge of entry to financial companies in 2020.

In Nigeria, greater than 1 in 2 Nigerian adults are financially excluded – with no entry to formal financial companies comparable to cost, financial savings, and credit score. Data from World Economics places it that the dimensions of the casual financial system in Nigeria is estimated to be 57.7% representing $1,164 billion at GDP PPP ranges. This signifies that financially underserved communities and younger entrepreneurs, usually must depend on social capital for financial help. 

The low barrier to entry and inherent belief makes family lending a well-liked different to formal credit score. However, the market faces a number of challenges, together with high-interest charges, lack of transparency, restricted entry to formal credit score infrastructure, and lack of regulation.

A brand new report titled; Lending in Nigeria: Can tech make borrowing from family and associates sustainable? goals to supply a complete evaluation of the family and associates lending market in Nigeria. The report which was put collectively by TechCabal Insights and Sycamore, a peer-to-peer lending startup discusses the main stakeholders, why it exists, frequent challenges, and its implications for the Nigerian financial financial system, in addition to the chances therein, particularly with the arrival of digitalization in the area.

The report attracts on a variety of related research to help its evaluation. It cites a current survey carried out by Enhancing Financial Innovation and Access (EFInA), roughly 43% of Nigerians are financially excluded, with no entry to formal financial companies comparable to cost, financial savings, and credit score. According to the report, borrowing from family and associates accounts for 44.7% of lending channels for younger individuals in Nigeria.

Fig 2: Commonly used channels for lending amongst people and small companies in 2021

Addressing the challenges dealing with the family and associates lending market will enhance entry and in the end drive financial inclusion for underserved communities. One main problem is that assortment and compensation are troublesome, as revealed in the report. In many instances, debtors have little recourse in instances of fraud or different unlawful practices because of the shortage of regulatory insurance policies that information that area.

Technology presents varied options to deal with the inefficiencies in this sector by the emergence of digital lending platforms. These platforms present a chance to extend transparency, enhance entry to credit score for underserved communities and supply debtors with larger recourse in instances of fraud or different unlawful practices. The provision of regulatory frameworks by the federal government may also assist to additional consolidate the market.

“We at Sycamore have been particularly interested in this subject because we have been aware of this problem for a while, and have even created a product tagged “Loan Friends” to unravel it,” stated Tunde Akin-Moses – CEO, Sycamore. “Borrowing between friends and family is a practice that has lasted for generations. We are confident that technology would further cement this practice by increasing its sustainability.”

The report recommends a number of methods to advertise financial inclusion and enhance entry to finance for underserved communities in Nigeria, together with the event of stronger credit score scoring techniques, the promotion of financial literacy, and the supply of peer-to-peer digital lending platforms like Sycamore’s “Loan Friends”.

Join us on Friday, April twenty eighth at 5 PM (WAT) for the launch of our report titled:Lending in Nigeria: Can tech make borrowing from family and associates sustainable? We will deliver collectively fintech specialists to debate the methods to navigate the inefficiencies of communal lending. They may also be discussing insights from the report. Register right here. Download the report right here.