Unsolicited loan offers: Saviour or gateway to financial trauma?

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These are just some examples of the unsolicited text messages inundating Nigerians mobile phone spaces daily.

Many Nigerians continue to voice the excruciating pain and frustration associated with repayment plans for loans obtained from microfinance banks (MFBs) or institutes (MFIs) and sometimes, from faceless groups now popularly known as loan sharks.

Loans sharks because of the aggressive manner they execute their d
ebt recovery processes.

Such loan subscribers, mainly petty traders, civil servants and local artisans, the primary borrowers, often endure significant stress as they struggle to meet their weekly installment payments.

The fear of defaulting leads to palpitations and anxiety among borrowers, who face harsh consequences if they fail to make payments on time.

Defaulters are frequently subjected to humiliating punishments, such as being confined in toilets or publicly paraded to beg for alms, further exacerbating their plight.

But why this surge lately?

Industry experts say several factors contribute to the rise in unsolicited loan offers via text messages.

First, the accessibility of mobile technology has facilitated direct outlet by financial institutions and lenders to potential borrowers.

Additionally, they say that the growing demand for quick cash and credit, especially during economic uncertainty and hardship, provides fertile ground for such offers.

Another factor is the cumbersome nature of proc
essing loans in conventional banks coupled with their astronomically high interest rates, which sometimes hovers between 23 to 27 percent inclusive of ‘hidden charges’.

Moreover, the lack of robust regulatory frameworks in some regions may embolden lenders to employ aggressive marketing tactics.

Financial experts say though mouthwatering, unsolicited loan offers require thorough consideration before entering into debt agreements.

They advise Nigerians to approach debt clickbaits critically and verify information before making financial decisions.

Nigeria, like many countries, has a diverse range of perspectives on debt, influenced by culture, economic, and individual factors.

According to the World Bank, financial inclusion refers to ensuring that individuals and businesses have access to affordable financial products and services tailored to their needs.

These includes transactions, payments, savings, credit, and insurance, in a responsible and sustainable manner.

Financial inclusion is recognised as
a catalyst for achieving seven of the 17 Sustainable Development Goals.

The G20, a group of 19 countries and EU as well as African Union, has pledged to promote financial inclusion globally and has reiterated its dedication to implementing the G20 High-Level Principles for Digital Financial Inclusion.

The World Bank Group views financial inclusion as a critical driver in reducing extreme poverty and fostering shared prosperity.

The proliferation of fintech startups across Africa has expanded access to financial services, but has also exacerbated the issue of predatory lending, trapping borrowers in cycles of debt.

Some fintech companies lure potential borrowers through unsolicited text messages and calls, offering loans with steep interest rates.

In spite of the modest loan amounts, borrowers can swiftly accumulate substantial debt through mobile loans, often facing late fees, harassment from lenders, and escalating interest rates.

When borrowers struggle to repay, creditors often resort to intrusive me
asures, such as contacting the borrower’s family and friends to coerce repayment.

Exposure to loan sharks also exposes the beneficiary to financial security hazards such as identity theft such as BVN.

In recent times, Nigeria is abuzz with conversations surrounding the alarming increase in fraudsters exploiting the Bank Verification Number (BVN) for loan frauds.

Initially introduced to identify individuals in the banking sector, the BVN has now become available across various financial and non-financial institutions, serving as a crucial tool for identity verification.

However, alongside its utility, the BVN has also become a target for cybercriminals seeking to perpetrate fraudulent activities.

In response to this growing threat, a recent webinar titled ‘Fighting BVN and Loan Fraud’ gathered industry experts to discuss strategies for protecting individuals’ financial security and combating the pandemic of BVN-related fraud.

Leading the discussions were Ayomide Oso, co-founder of Dojah, Gbenga Omolokun,
Managing Director of VFD Microfinance Bank, and Razaq Ahmed, CEO of Cowrywise.

Omolokun shed light on the various methods fraudsters employ to obtain BVNs through registration agents creating ‘ghost BVNs,’ devoid of any biometric data, making them untraceable.

According to him, this can be done by exploitation of less privileged individuals in villages and IDP camps, where fraudsters input their own phone numbers during BVN registration for those unaware of the significance of safeguarding their BVNs.

He said it could even be done through the utilisation of stolen or lost SIM cards to dial the 5650# USSD code and retrieve BVNs attached to those phone numbers.

‘Once in possession of legitimate BVNs, bad actors exploit them for various fraudulent schemes, with loan fraud being particularly prevalent.

‘In this type of fraud, perpetrators use victims’ identities to secure loans and default on payments, leaving victims to bear the financial burden’.

Mr Razaq Ahmed, CEO of Cowrywise, recommends several strate
gies that fintech providers can adopt to prevent BVN fraud by ensuring data privacy and security to safeguard customers’ data.

From a user perspective, Ahmed offered practical fraud prevention strategies to include the need to exercise caution when sharing BVN and personal details with applications.

He said there was the need to conduct thorough research to distinguish between legitimate and illegitimate businesses.

He added that contacting financial institutions directly to confirm the authenticity of any strange or urgent requests is crucial.

It is worth mentioning that the Federal Competition and Consumer Protection Commission (FCCPC) has announced plans to block loan apps that harass customers.

Acting Chairman of FCCPC, Adamu Abdullahi, stated in a recent interview that these loan platforms, often known as loan sharks, will soon be history in the country.

According to Abdullahi, these loan apps provide quick money to Nigerians for urgent needs but resort to sending unpleasant messages and pictures t
o all contacts of those who fail to repay on time.

This harassment has caused significant issues in Nigeria, including job losses due to embarrassment and disgrace.

While the FCCPC does not directly handle these harassment issues, they do not condone such practices.

To tackle the problem, the FCCPC has involved the Central Bank of Nigeria (CBN), the National Information Technology Development Agency (NITDA), the Economic and Financial Crimes Commission (EFCC), and the Human Rights Commission to form a committee.

‘Given that these loan companies operate online without physical offices or managing directors, the FCCPC has approached Google and Apple to remove their apps from their stores.

‘Additionally, the FCCPC has coordinated with the CBN to block all accounts associated with these loan companies’.

Experts say the surge in BVN exploitation underscores the urgent need for collaborative efforts between industry stakeholders and individuals to combat fraud effectively.

They say by implementing robust sec
urity measures and fostering greater awareness among users, Nigeria can mitigate the risks associated with BVN-related fraud and safeguard the integrity of its financial ecosystem.

Source: News Agency of Nigeria