Inside the financial slaughterhouse – by Rarzack Olaegbe
There are always two parts inside a slaughterhouse. There is a clean side and a dirty side. Animals must go through the dirty side first before they go into where they’re going to be prepared for human consumption.
The dirty side is where all the guts, hair and skin are removed. It’s a proper production line. If you have visited the slaughter slab you would understand. The slaughterhouse is bloody.
There is another kind of slaughterhouse. It is a financial house. But because the operator of the company had received a bloody nose many times from many unscrupulous Nigerians, it has become a slaughterhouse.
The company had raised the stake by making it impossible for borrowers to fleece the company again. The interest rate it charges borrowers on secured and unsecured personal loan range from five per cent to 36%.
The banks and some online lenders charge lower rates. The lack of access to the bank loan has lured many business owners into the slaughterhouse.
This is so because of a lack of adequate funding has remained the main challenge that is confronting small and medium enterprises in Nigeria and some loan sharks, like the one above, are taking advantage of this loophole.
For instance, to qualify for credit in any of the loans companies I visited recently, you need to supply your identity card, one passport photograph, postdated cheques from your guarantor, a bank statement showing six months transaction and valid utility bill.
The other requisites you must have is the processing fee, a guarantor’s confirmation letter, application letter to be filled signed and sealed by your guarantor, offer letter and collateral.
The collateral must be a car that is not more than 10 years old. You would park the car on the premises of the credit company and submit the valid documents to the management.
There are many rivers to cross before you can secure the loan. Having listened to the litany of prerequisite credentials needed before an applicant can smell the cash I wondered why an applicant must supply all of the above information before getting a loan facility.
The managing director said the company had been duped in the past and it was a rude awakening for the management.
He explained that one of the applicants in the past had sold the car he presented as collateral prior to handing it over to the company.
The buyer sued the company. The buyer won. Another applicant fled the country after having gained access to the credit.
He narrated that, efforts to recover the loan failed. Another applicant collected the credit and relocated to his village, changed his SIM pack, his name and destroyed evidence linking him with the credit company. The company lost its investment.
He shared another sad experience and another and another. This credit company is thriving because the banks, microfinance banks and some online lenders are not playing their professional roles adequately.
If these financial institutions are performing at an optimal level this slaughterhouse would not thrive. For instance,
I visited another popular credit company that promises to give as much as N5 million to business owners. Having fulfilled all the paper works, my application was rejected because the bank statement, which met all the conditions, does not have “monthly inflow.”
It is quite obvious that the credit companies are searching for mom and pop shop-owners and salary earners who have steady monthly income flow.
The operators of this popular loan company forget that every business at some point in its operating cycle requires some form of finance to pay its short term indebtedness, to fund new projects, to execute business plans and to acquire operating assets.
Likewise, individuals at some point may need bank loans to help fund car purchase, real estate mortgage or buy home appliances.
The management of these credit companies and the banks should know that not all businesses generate monthly inflow. Some companies have a 45-day financial inflow and other businesses get a 90-day inflow.
This fact means that some businesses would not find the banks or loan companies attractive. That is why many of them keep running back to the slaughterhouse where they are treated like animals.
On the other hand, online mobile lenders such as Branch, Kudi, Zedvance, Social Lenders, and Palm Credit etc are on the increase and these lenders are using machine learning to analyse the ability of the applicants to repay.
Many business owners are getting loans, too. The Central Bank of Nigeria’s Credit Condition Survey Report showed that there was an increase in the availability of secured credit to households and corporates in the first quarter of 2018. But why do other individuals and business owners keep patronizing these slaughterhouses?
Olaegbe is Executive Director at eMagination Communications and Financial Technology, Lagos Nigeria