Trapped: How Limited Bank Credit Exposes Nigerian Small Business Owners to Costly Digital Loans
- Digital lenders are making it easier for businesses shut out by banks to get cash within minutes, but borrowers can end up with expensive short-term debt they struggle to repay and get trapped in a debt cycle, Dave Ibemere writes
PAY ATTENTION: Find it fast with our new search feature at Legit.ng!
Kunle Ademi was desperate for money after thieves stole most of the stock from his phone business at Computer Village in Ikeja, Lagos.
He had N1.2 million in his bank account but needed another N3 million to restock his shop and rebuild the business.
Source: Getty Images
The loss left him with little to sell and an urgent need for working capital. Friends advised him to approach a bank for a loan.
Banks, however, asked for documents and other requirements he could not provide, leaving him to return to his largely empty shop without the financing he needed.
Days later, while sitting in the shop watching comedy videos on his phone, Kunle saw an advert for a loan that promised quick access to cash.
When he clicked the advert, it was from Easemoni, a digital lending platform. Desperate for urgent money, he completed the application and was offered N2.5 million, which he said arrived in his account within minutes.
For a business owner trying to recover from a robbery, the money appeared to offer a way out.
Kunle told Legit.ng:
“I was so happy that I could have my business again."
He accepted the six-month loan but said he did not pay enough attention to the interest rate because he was focused on getting his business running again.
He said:
“The loan was for six months. I didn't even check the interest rate. I was so happy that I could have my business again."
Three months later, Kunle said he was paying more than N600,000 each month and had reached a point where he could no longer meet the repayments.
He said:
“I can no longer pay again."
A similar experience unfolded for Amaka Ofu, a food seller in Lagos who needed extra funds to expand her business in early 2025 after completing her NYSC in 2024 and struggling to find a job.
With limited savings and no financial support from her family, Amaka decided to apply for a loan through Okash, another lending platform.
She was approved for a short-term facility for N100,000, but the repayment deadline came before she had generated enough income from her business.
Unable to repay the loan on time, Amaka turned to another lending app, Futurecash, to raise the money needed to settle the first debt.
The second loan came with another repayment deadline and additional charges, putting further pressure on her daily income from food sales.
As the debts accumulated, Amaka borrowed from more lending platforms to repay earlier loans. What began as an attempt to raise working capital for her food business gradually became a cycle of borrowing and repayment.
By the time she realised how much she owed, a significant portion of the money she made from selling food was going towards repaying loans rather than supporting and expanding her business.
She told Legit.ng:
“I had to take another loan of N28,000 to repay the first loan. The new loan has a six-month repayment plan, with a total amount of N58,000 due. I was desperate and had no choice. Now I am stuck with two debts.”
The experiences of Kunle and Amaka highlight a growing challenge for Nigerian entrepreneurs.
Digital lenders are expanding access to credit, but high costs and repayments have become a burden to small business owners who need them for quick cash.
Some loan apps and their rates
The interest rate could be higher based on the amount offered, the applicant and the repayment period. The rates below are advertised rates, but the actual terms may differ.
Loan apps | Loan range | Key feature / APR |
Up to N200,000 | 35% APR | |
Branch loan app | Up to N50,000 | 60%–120% |
FairMoney loan app | Up to N50,000 | 36% APR |
Okash loan app | N200,000 | 20% or higher |
Fastfund loan app | Up to N50,000 | 36%–360% APR |
Palmcredit loan app | Up to N100,000 | 34%–271% APR |
Umba loan app | Up to N50,000 | 24%–36% |
Up to N20,000 | Up to 36% APR | |
QuickEgo loan app | Up to N10,000 | 19% APR |
Alend loan app | Up to N50,000 | 10%–33% APR |
Nigerian financing gap and the burdens
An International Finance Corporation assessment estimated unmet MSME credit demand at about $32.2 billion, equivalent to roughly N13 trillion using the exchange-rate conversion in its study.
A separate assessment by the Centre for the Promotion of Private Enterprise estimated the SME financing gap in Nigeria is at about N48 trillion.
CPPE noted that SME credit accounts for about 1% of total bank credit, compared with an average of roughly 5% across sub-Saharan Africa.
For entrepreneurs, the financing gap does not disappear when a bank rejects an application. It pushes them towards other sources of money, including digital lenders.
Source: Facebook
Digital lending has become attractive because of its speed. Business owners in need of cash can apply through their phones, receive decisions quickly and, in some cases, have funds deposited without visiting a branch or providing the type of collateral traditionally required by banks.
Sarafadeen Fasasi, national president of the Association of Financial Inclusion Agents of Nigeria, told Legit.ng that digital lending plays an important role in expanding financial access in Nigeria, but his association receives complaints from consumers about some lending platforms.
He said:
"As agent association which lastmile consumers see as bank representatives, we receive reports on how these digital apps are scamming Nigerians daily with impunity. Unfortunately, there is a feedback or issue resolution disconnect, between the regulators and the lastmile structures (Agent body/ consumers)."
Fasasi said complaints received by his association include allegations of unexpected loan disbursements, repayment difficulties, high charges, credit-reporting disputes and aggressive recovery practices.
He revealed:
"Digital platform manipulation: Since most lastmile customers are not tech savy, several lending apps auto disburse without clicking a button to accept offer. During onboarding, you are made to tie your bank account, even when you don't request for renewal, you can get credited.
"Some loan apps intentionally take-off repayment account from the dashboard, for borrower to cross default timelines, & get to pay 10% daily penalty fees
" I still do not believe that these loan apps are adhering to CBN & FCCPC regulations on interest rates. We have seen up to 50% per month= 600% p.a."
He said some consumers had reported being credited with loans they did not believe they had requested, particularly after linking their bank accounts to lending platforms.
Fasasi said his association also receives complaints about repayment mechanisms and early settlement.
He said some borrowers had reported difficulties liquidating loans before their due dates or faced additional charges depending on the terms of the facility.
"Another issue is on Liquidation, Fasasi noted that most borrowers forget about their loans.
"Unfortunately, most loan apps are not programmed to liquidate your loan ahead of due date or you are penalized with higher interest rate."
He also raised concerns about credit reporting, saying some consumers had approached his association after discovering that loans they believed they had repaid were still affecting their credit records.
Borrowers may only become aware of such disputes when they apply for another loan, he said, potentially creating another obstacle for entrepreneurs trying to access finance.
Fasasi stated:
" Most borrowers still find their records blacklisted for loans paid off without defaults. The most pathetic part of our system is that customers are not privy to their credit reports until they are ready for another loan & can be shocked with false blacklisting.Despite regulator's campaigns against these, some of the digital lenders continue to make threat calls to borrower inlaws, even when not in default."
Debt recovery is another concern. Fasasi said his association had received reports from borrowers alleging that some digital lenders contacted relatives or in-laws during recovery efforts, including cases in which borrowers claimed they were not yet in default.
Source: Facebook
Simeon Edigbe, a financial expert, also provided insight into the loan cycle many small business owners face.
He said some digital lenders charge high interest rates that can make repayment difficult.
“Borrowers should not focus only on how much they can borrow, but how much they will actually repay.
“For example, I came across a loan offer which provides N47,000 for 42 days, with N19,908 in interest and total repayment of N67,308.
That is about 42.4% of the amount borrowed in just 42 days. If you check their online ads and published rates on Google app play store, you will something entirely different.”
Edigbe noted many people take these loans when they are already financially stretched, potentially trapping them in a cycle of borrowing and repayment.
“Many small business owners turn to digital lenders when they are already under financial pressure, potentially creating a cycle of borrowing and repayment that becomes difficult to escape.
My advice: Stay off them. It's only going to make your financial situation even worse. They aren't setup to help you but enslave you to them.”
FCCPC has watchdog
The Federal Competition and Consumer Protection Commission (FCCPC) said it has increased its oversight of Nigeria’s digital lending sector.
Its Digital, Electronic, Online and Non-Traditional Consumer Lending Regulations 2025, which will come into effect in July 2025, introduced requirements aimed at improving transparency, fairness and accountability in the sector.
However, challenges remain, as some lending apps continue to operate outside the FCCPC’s approved framework.
The FCCPC maintains lists of approved, conditionally approved and delisted digital lenders. However, some apps appearing on its delisted or unapproved lists remain accessible to Nigerians through online platforms.
For example, Cashpal appears on the FCCPC’s list of delisted digital lenders, meaning it is no longer authorised under the commission’s regulatory framework.
However, a search on the Google Play Store shows that the Cashpal app, now renamed Kashpal, remains available for download and no approval.
Other lending apps, including Hi Credit Loan App Nigeria, Futurecash and XLoan Quick Money App, SmartNaira, operated by different companies are accessible to SMEs despite not appearing on the FCCPC’s approved list or conditional approved list.
This raises questions about how effectively consumers can be protected when apps that are not listed as approved lenders remain available for download and use.
SMEs biggest headaches
For SMEs, the central issue remains the cost of credit. The amount deposited into an account is not necessarily the true cost of a loan because interest, fees, penalties and repayment schedules determine how much the borrower eventually has to return.
In Kunle's case, the N2.5 million he received solved his immediate stock problem, but the repayment burden is now a new cash-flow challenge.
He is now faced with repaying a loan of N2.5 million with N4.07 million within six months. That represents 62.8% of the N2.5 million borrowed. For a small business owner, the difference is huge.
An entrepreneur may borrow money to buy stock, expecting the additional sales to generate enough profit to cover the loan. If sales are delayed or margins are squeezed, the repayment may consume money needed to buy the next batch of stock, pay employees or settle suppliers.
The business owner may then borrow again, creating another repayment obligation. That process can develop into loan stacking, in which a business holds several loans at the same time and sometimes uses new borrowing to meet existing repayments.
What begins as working-capital finance can become a cycle in which an increasing share of the business's income is committed to servicing debt.
This is why Fasasi believes it is important to use non-conventional feedback channels and work with last-mile structures to ensure sanity.
"Regulators need to have non-conventional feedback channels and work with lastmile structures to ensure sanity. Obviously, the usual formal reportung channels are not effective, for the informal markets serviced by these digital lenders."
While a loan can provide necessary working capital when it is matched to a business's cash cycle, the same loan can become a burden if repayment begins before the business has generated sufficient income.
Source: Legit.ng
