Segun Wuraola was in dire need of money to support his family when the COVID-19 pandemic struck in 2020 and restrictions and lockdowns came into effect in Lagos, Nigeria.
He chanced upon a digital promotion on his phone by a private online lender offering easy loans. Wuraola just needed to download an app to apply. He told DW that he then received a loan of 5,000 naira, the equivalent of around $12.
Wuraola was required to pay back the full amount plus 60% in interest within two weeks.
But when the repayment was due, Wuraola's phone crashed and he couldn't access the app. The online lender then blacklisted him.
"They actually spoilt my image, they were actually reaching out to my contacts telling them that I am a criminal — telling my family and friends that I am a scammer, a thief, that I have gone away with their money," Wuraola said.
Many Nigerians have had to take loans from unscrupulous online lenders in COVID times. Those with no means to earn a living had no option but to accept exorbitant interest rates. The online lenders they turned to were mostly Chinese-owned.
Deceptive loan offers
The simplicity of the online applications for those seeking loans has hooked many Nigerians.
On Google, the policy rules for lending apps require companies to leave a 60-day period between the approval of a loan and the repayment date. The loan providers that target Nigerians display those rules, but in practice, their repayment periods are shorter.
It is also only once the loans are disbursed by these companies that consumers become aware of the outrageous interest rates. Loans are disbursed quickly and consumers are often slow to notice the harvest of their personal details and contacts.
This data helps the firms to go after defaulters by publishing their pictures online and bombarding their relatives and friends with details of the situation.
"People that were to help me out now see me as a criminal. There is something they call integrity, they just spoilt my name because of five thousand," Wuraola said.
Nigeria's Federal Competition and Consumer Protection Commission (FCCPC), National Information and Technology Development Agency (NITDA) and Independent Corrupt Practices and Related Offences Commission (ICPC) stepped in last month.
Authorities raided the offices of digital lenders suspected of operating illegally in Ikeja, Lagos. Digital lending platforms like GoCash, Okash, EasyCredit, Easi Moni, KashKash, and Speedy Choice were ordered by the authorities to close down.
The FCCPC said the loan companies were not Nigerian-owned and were not registered or licensed to operate in the country.
Unethical recovery methods
Nigerian authorities said complaints about the violation of private data and loan recovery methods prompted an investigation into the online lenders in 2020.
Samuel Adeyemi told DW he was harassed on the phone by one of the companies because a loan defaulter in Nigeria had listed him as a contact.
"Sometimes, we the victims are not the ones who applied for loans from them and the next thing they will just invade our phones and start reporting people we don't even know,” Adeyemi said.
"When you want to ask questions, you realize it's a recorded call. You cannot even ask questions, you cannot even say anything."
The head of the FCCPC, Babatunde Irukera, told reporters recently that it was unethical to violate the privacy of customers to abuse and shame them and their acquaintances.
The recovery of debts owed to these companies is a lucrative business for debt collectors, according to the International Centre for Investigative Reporting (ICIR). Collection agents are reportedly paid a weekly bonus of three percent of the debt sums recovered..
Crackdown via Google and Apple
Nigeria's financial sector regulators are working to identify more illegal loan providers in order to close them down.
The federal government has already frozen the bank accounts of over 30 illegal loan providers. It has also ordered Google LLC (Play Store) and Apple Inc. (App Store) to withdraw certain applications held by illegal online lending firms. The Android and iPhone apps they use to lure consumers are also being deactivated.
Nigeria's Central Bank Governor Godwin Emefiele says that despite the recent success in shutting down "loan sharks," identifying these companies remains a challenge because of the underground nature of the business.
"Go to institutionalized loan institutions to take your money so that when there is a problem, we can reach them to deal with them," Emefiele warned Nigerians. The country's banks offer loans with interest rates of around 24% a year.
The government promised to expand its crackdown on illegal digital lenders beyond Lagos as many of the consumers they ensnared grapple with shame and are left with reputations in tatters.
Edited by: Benita van Eyssen