By Mofoluwawo Oluwapelumi Mojolaoluwa

In 2019, the Central Bank of Nigeria (CBN) issued a directive to banks and financial institutions to increase their loan portfolio.

This directive was aimed increasing the Loan to Deposit Ratio (LDR) from 60 percent to 65 percent so as to ensure that banks lend money to the real sector of the economy.

As was the case before this time, bank loans remained inaccessible and elusive to the common man, to the members of the real sector of the economy, at which the drive was targeted.

And this, chiefly because of high interest rates and lack of collateral, two difficult peas in a pod.

However, as though prompted by this obvious challenge, Nigeria has in the last few years witnessed a rise in the number of microfinance banks, micro loan organizations, credit institutions and non-banking financial institutions, who are taking advantage of CBN’s loan largesse, repackaging it into smaller loans, and re-advancing it to their teeming customers at their own interest rates and on their own terms.

The real catch here is that these repackaged loans are non collaterized. Imagine getting a loan without having to give anything up as collateral? Very catchy and enticing to their target market which observably consist traders, small business owners, entrepreneurs, and low income earners.

The basic requirement most times is the provision of a few guarantors, and or a salary account for salary earners. While this is not a bad thing, this credit system continues to be marred with pertinent issues such as unattainable interest rates, non-credit worthy or fraudulent credit takers and fine print fraud.

The Cambridge Online Dictionary defines fine print as a text in a formal agreement that is printed smaller than the rest of the text, sometimes in the hope that it will not be noticed.

It refers to terms and conditions, clauses and other key information subtly hid away in an agreement or contract by using smaller fonts, leaving it in a supplemental document or reducing it to a long, verbose treatise arduous for the reader to read or understand. It is here that information which the issuer does not want the recipient to pay attention to or grasp, is hid- however essential and crucial to the contract.

As such, the recipient does not have a wholesome understanding of what they are getting into, at the time of signing the contract. This is called Fine Print Fraud.

In this instance, fine print fraud happens when prospective debtors are tricked into signing loan agreements that contain vague and ambiguous clauses regarding interest accrual, repayment period, guarantor obligations and loan recall methods.

And this appears to be the modus operandi of non-collaterized credit facilities. Entice a desperate debtor, get them into a contractual relation they scarcely understand, come back to bite them upon default, rinse, repeat.

At the risk of committing the fallacy of hasty generalization, one can say that the average target of these non collaterized loans, does not understand nor has the proper orientation about how credit works.

Many a debtor is concerned only with satisfying a pressing need for funds, with no clear repayment plan. And now that the bottleneck of collateral has been withdrawn, it’s free money for the taking! Absurd.

As a mediator, I have written to a bank once on behalf of a debtor who took a loan and absconded. In fact, he literally moved his banking from that bank to another. It was in an attempt to obtain a fresh loan that the new bank informed him that a lien had been placed on his account loan wise, as his bank verification number had linked all his accounts and revealed his bad debt. He had no choice but to return to the first bank, to sort the debt.

Perhaps it is not a fallacy after all to state that this is the mindset of an average small loan taker, take and disappear.

Whilst non-banking financial institutions and microloan institutions may not have the luxury of placing liens on a creditor’s account with other banks, they do have their ways too. Chief amongst which is inserting oppressive clauses in the fine prints, which allows grants them unfettered access to a debtor’s personal contacts via their software. They then employ the naming and shaming tactic, and spam the debtor’s contacts with threatening and embarrassing messages until the debtor pays up.

Unattainable interest rates is another challenge. These loan givers charge even more than the banks. But their unique selling point (USP) continues to work for them, a more flexible repayment plan than the traditional banks, and no collateral.

What the unsuspecting debtor fails to realize is that eventually, the ridiculous interest makes up for collateral and becomes counterproductive in the long run. Here as well, clauses as to guarantor responsibilities and interest accrual on installment default are hidden in the fine print. Ere Jack, the payable sum (capital plus interest) has morphed into an insurmountable mountain the debtor cannot cross. A debtor becomes a perpetual debtor with the creditor threatening to exact a pound of flesh in the order of Shylock. A Daniel must come to judgment!

A few things are clear, ours is not traditionally a credit economy. Microloans, which seemed to have been a solution to ease the economic straits of the average debtor is fast becoming a debt trap for many. The target market are either scarcely literate and or impatient in the face of temporarily free funds; to read, interpret, and understand the loan agreements, fine prints and all. The creditor capitalizes on this to withhold crucial information which it then uses against the debtor, in case of a default. Coincidentally, this market is fueled by economic downturn and desperation. The creditors have a sure bait- give loans with no collateral! One pea out of two in a pod taken away. The other pea, a high interest rate, pales in comparison, especially with flexible repayment structures and the key ingredient of desperation. The high interest never seems to be a problem until it actually is! The traditional banks calls in the big collaterized loan, the non-traditional banks in turn call in the smaller non collaterized loans. There is a default, and then the Pandora’s Box is opened. Data privacy breaches, debtor and guarantor harassment, skyrocketing accruable interest, etc. The Nigerian microcredit sector is in dire need of a saviour!

Mofoluwawo Oluwapelumi Mojolaoluwa is a lawyer and mediator, Houseoflivingstones@gmail.com