The accelerated evolution of digital banks and financial technology (FinTech) platforms in Nigeria has made loan access quicker and easier than ever. Whereas bank loans can take just a few steps, some fintechs have the capability to credit a borrower’s account in minutes. Nevertheless, experts warn the same ease of access can within a short time accumulate into debilitating debt if not properly managed.
With the Global Standing Instruction policy, individuals and small businesses are persuaded to refrain from borrowing that can become an unbearable financial burden.
Dr. Muda Yusuf, a previous Director-General of the Lagos Chamber of Commerce and Industry and Chief Executive Officer of the Centre for the Promotion of Private Enterprises, stressed that borrowing could be good but must be accompanied by discipline and purpose.
“For consumers, consumption lending is rarely a good idea,” Yusuf said. “Impaired self-control, impulse buying, and efforts to ‘keep up’ with the Joneses habitually lead to humiliating debt. Consumption needs to be within one’s earning power.” He said investment loans can make economic sense if undertaken after proper risk analysis and having a clear repayment strategy through the returns on the investment.
On the business side, Yusuf added that debt is typically required to expand but must be exactly calibrated. “Debt levels must be serviceable within the company’s cash flow. Otherwise, it will kill the business,” he warned.
He advised entrepreneurs to consider raising equity instead of relying on loans. By selling a small equity say 10 to 15 percent to investors, companies can raise funds without losing control, while avoiding unsustainable debt.
