The wave of digital lending in Africa actively started in Kenya and by 2011/2012. This wave of digital lending has now captured Africa widely considering the fact that sub-Saharan Africa accounted for 70% of global mobile money transactions in 2018 according to Financial Technology Partners. Undoubtedly, Nigeria remains an irresistible “digital market” and has been able to attract clubs of organized and disorganized digital money lenders promising eye catching collateral free short-term loans and presenting themselves as “saviours of the poor”.
The two most significant laws guiding loans and money lending in Nigeria are Banks and Other Financial Institutions Act, BOFIA and state administered money lending laws. For example, Section 57 (1) of BOFIA prohibits any person from carrying on specialized banking or business of an OFI (Other Financial Institutions) except it is a company duly incorporated in Nigeria and holds a valid license obtained from the Central Bank of Nigeria (CBN). Services such as money brokerage, international money transfers, payment services, “debt administration”, private ledger services, and mortgage guarantee etc. whether digital or virtual are all captured.
On the other hand, states in Nigeria have different laws regulating money lending services but it has been largely observed that many of these state laws require that a money lender be licensed before operating in their states. Specifically, the Lagos State Money Lenders Law provides that any person who lends money at interest or who lends a sum of money in consideration of a larger sum being repaid will be regarded as a money lender and such must be licensed.
Interestingly, with the massive entry of loan apps into Nigeria’s market, it is important to categorize these loan apps for vivid understanding. There are loan apps such as ALAT of Wema Bank, Quickbuck of Access Bank, Carbon App, Kiakia etc. that have registered offices in Nigeria and operating within licensed financial structure coupled with categories of loan apps that do not have registered companies in Nigeria and not operating within Nigeria’s licensed financial structure but acting as “digital nomads” with “digital offices” operating online. The second category of digital lending apps is operating illegally in light of legal provisions examined above.
The legality or illegality of public shaming
The Small and Medium Enterprises Development Agency of Nigeria, SMEDAN and National Bureau of Statistics NBS confirm that Small and Medium Enterprises, SMEs contribute nearly 50% to Nigeria’s Gross Domestic Product, GDP and generate 80% employment. Despite 48% contribution of SMEs to Nigeria’s GDP for the past five years, access to fund remains the biggest challenge according to PwC SME survey. Thus, digital lending apps remain the most attractive to struggling traders and salary earners in Nigeria but this attraction remains a symbolic “honey trap” as digital lending apps that are mostly unlicensed are not only introducing killing interest rates but shaming defaulters through “authorized and unauthorized data mining”.
Fundamentally, digital lending services operate within provided terms and policies which they conditionally offer customers which includes offer to extract customers’ data and terms of repayment. Right to privacy is not only secured by section 37 of 1999 constitution but is well guarded by the Nigeria Data Protection Regulation, (NDPR 2019) which captures right of a person to data privacy. NDPR provides that data controllers must disclose what data is being processed for the purpose and consent must be obtained coupled with the right of the data subject (customer) to withdraw his or her consent.
In light of this, it is justifiable for digital lending apps to invade privacy of defaulters subject to prior consent of the customer in exploring means legal to press for loan repayment. However, paragraph 2.4 (A) of the NDPR provides that no consent shall be sought, given or accepted in any circumstance that may engender direct or indirect propagation of atrocities, hate, child rights violation, criminal acts and anti-social conducts.
The practice of public shaming by digital lending apps can be best described as “anti-social” in some specific instances. For example, a loan app sending messages to contacts of a defaulter and calling him or her “chronic debtor, liar, manipulator etc.” cannot be regarded as ethical. But it must be clarified that the practice of social or public shaming is not illegal outright in as much it is done subject to consent of the client and within the provisions of NDPR on data privacy or existing laws.
Notably, the case of Sokoloan App is very relevant as NITDA lately sanctioned Sokoloan App with N10million for unethical conducts but the effectiveness of this sanction can be debated considering the legal dilemma discussed above.
Lastly, it is apparent that there is a regulatory gap in the digital lending service sector despite legal provisions of BOFIA and NDPR. Thus, it is important for regulatory agencies in Nigeria to learn from the most recent regulatory actions of Central Bank of Kenya in specifically regulating loan sharks in respect of outrageous interest rates, data privacy and public shaming. Nigeria needs specific regulations that will regulate, but not crush digital lending activities. Regulations such as compulsory licensing as established in existing laws must be enforced, illegal/unethical data mining should be checked, social shaming practice should be regulated or abolished and repayment policy reviewed.
Dada-Qadri is a lawyer and policy analyst based in Abuja.