Biting economy forces more Nigerians into debt to survive

By Tumininu Ojelabi Hassan

An increasing number of Nigerians are resorting to borrowing from several lending outlets to remain afloat as the economic situation in the country continues to worsen. Checks by Business Hallmark reveal that Nigerians borrowed over N290 billion in personal and consumer loans from banks in three months.

This is based on the recent Economic Report for the Second Quarter of 2023 by the Central Bank of Nigeria (CBN). The report revealed that consumer credit, which includes personal and retail loans, increased by 12.2 percent from N2.35 trillion in the first quarter of 2023 to N2.64 trillion in the second quarter of 2023. This signifies an increase of N290 billion in three months between April and June this year.

According to the report, personal loans amounted to N1.92 trillion, that is, 72.9 percent of the total consumer credit of N2.64 trillion as at June 2023, while retail loans amounted to N715.10 billion, that is, 27.1 percent of the total consumer credit.

“Consumer credit improved owing to increased demand for personal loans and strengthened enforcement of the Loan-to-Deposit Ratio (LDR) policy. Consequently, total consumer credit increased significantly by 12.2%, to N2,637.31 billion in the second quarter of 2023, compared with N2,349.88 billion at the end of the preceding quarter.

“As a share of total credit by ODCs, consumer credit declined to 7.0%, this was below the 7.7 and 7.8 per cent recorded in the preceding quarter and the corresponding period of 2022, respectively. The components of consumer credit revealed that personal loans accounted for the larger share, totalling N1,922.20 billion, representing 72.9% of the total, while retail loans accounted for 27.1%, equivalent to N715.10 billion.” the report stated.

The increase in consumer credit was ascribed to more demand for personal loans and strengthened enforcement of the LDR policy.

The soaring inflation rate has pushed an estimated four million more Nigerians into poverty and as the hardship in the country bites harder, Nigerians lament over the rising prices of food, fuel, and transportation, among others.

Recent data from the National Bureau of Statistics (NBS) showed that Nigeria’s headline inflation rate surged to 27.33 percent in October 2023, from 26.72 percent in the preceding month.

The macroeconomic review for the first half of 2023 by KPMG, coupled with projections for the second half of the year by experts, indicate that Nigeria’s headline inflation will rise to 30 percent by December 2023. The predicted increase was attributed to recent economic reforms, such as fuel subsidy removal, and the unification of the foreign exchange market.

“Specifically, our model suggests that the combined influence of fuel subsidy removal and foreign exchange liberalisation may drive headline inflation to about 30 per cent by December 2023,” experts foretold.

The World Bank projects that Nigeria’s poverty rate is expected to reach 37% in 2023, with an estimated 84 million Nigerians living below the poverty line, the world’s second-largest poor population after India. In addition to this, about 133 million Nigerians, 63% of the population are multi-dimensionally poor, according to the Multidimensional Poverty Index (MPI) survey by NBS.

With the hike in prices of food, transportation among others, it is not surprising that more Nigerians have to borrow to meet their daily needs and personal expenses.

A report by SBM Intelligence titled ‘Living Dangerously on Credit’, revealed that 27.1 percent of Nigerians across different income categories resort to banks, microfinance institutions and loan apps to sustain their living expenses amid the rising inflation.

“Deposit money banks and microfinance banks (including loan apps) were the major lines of credit for respondents, which signals that Nigerians have adopted these institutions as their lifeline, when they hit hard times. Loans from friends followed this, while local contribution groups (Esusu) ranked third on the list of loan sources.

“Salary advances and loans from cooperative societies were the least preferred sources of credit for respondents,” the report stated.

Despite the unethical loan recovery practices and harassment by loan apps’ agents, the demand for loan facilities increased significantly in the last few months as more Nigerians have been compelled to fall back on loans apps to keep up with the rising cost of living in the country.

Most of the respondents, who spoke with our correspondent lamented that their monthly income could no longer cater for their needs considering the high cost of food and other basic commodities in the country. Presently, many Nigerians with limited access to loans from banks, due to lack of collateral have become dependent on the fast-growing collateral-free digital lending companies or loan apps to access emergency funds to meet personal needs within a short period, in spite of there high interest rates.

Kunle Bankole, a 43-year old businessman shared his experience while speaking with our correspondent. The father of four said the upsurge in food prices and basic necessities was the genesis of his family’s financial woes.

“With the way the prices of virtually everything is increasing, especially food, my family can’t cope anymore without borrowing from loan apps. The economy is affecting my business badly, business is quite slow. I sell electronics, but I don’t make sales like before because people don’t buy electronics like they used to. It is a frustrating situation.

” If I had an option, I won’t take loans from loan apps because the interest on these loans are outrageous but I have no choice. I have to provide for my family. These days, when you reach out to family and friends to lend you money, they will start explaining their situation to you.

“These loan apps charge as much as N6000 on N20,000 for a period of two weeks. Some take N2000 on N5000 for 15 days. I wish I had another option but when the desirable is not unavailable, the available becomes the desirable,” he said.

Likewise, Anita Ihunwo, a hairstylist residing in Egbeda area of Lagos state, said borrowing from loan apps was an alternative way of surviving amid the harsh economic condition as her income and her husband’s weren’t sufficient to sustain the family for the month.

“Before now, the income of my husband and I was enough to sustain the family, but now we are struggling to feed. We have three children and our income can’t meet 50% of our needs. We are in serious debt as a result of borrowing from loan apps to feed and pay bills. “Everything is now expensive. One derica of rice is N1000, one paint of garri is N1300, a kilo of frozen chicken is now N3200, to fill a 12.5kg cylinder of gas is about N13,500 now, the popular ‘panla fish’ that used to be affordable is no longer affordable. Last year, we could prepare a good meal with N3000 but it is not even possible anymore,” she decried.

Bolade Kajola, a marketing executive who gave a breakdown of his expenditure for the month, said about 70% of his monthly salary goes into food and transportation as cost of living crisis worsens.

“I spend about 70% of my salary on food and transportation. It’s really tough. These days, my salary isn’t enough to meet my personal expenses for the month. It’s either I take a loan from a friend, a family member or in a worst case scenario, from the bank to survive through the month.

“Food items are now three times higher than before, utility bills have increased, prices of fuel and data have increased. These days, you can’t stick to a budget because of the unstable prices of goods in the market. Despite all these, salary has been the same. It’s a challenging phase for every salary earner especially low income earners,” he stated.

A loan officer, who spoke with our correspondent on condition of anonymity, said the demand for loan facilities in the last few months was significantly high, however the company has been reluctant to approve loans as they have experienced difficulties in retrieving their funds due to the state of the economy.

“In the past few months, we have had a high demand for loans, but we are skeptical to give out loans because we have been experiencing difficulties in recovering our funds. It got to a point, we slashed our interest rate to 50 percent to encourage defaulters to pay off their debts, only a few of them were able to make payment.

“The economic situation is also affecting our business because we can’t give out loans when people don’t make payments,” she disclosed.