Rising Food Inflation Drives Nigerians to Loan Apps for Survival

by Ikem Emmanuel
Record-breaking food inflation forces Nigerians to seek loans through fintech apps for daily sustenance. Experts caution that this increased demand may lead to higher default rates.

As Nigeria grapples with record-breaking food inflation, more Nigerians across income categories are resorting to loan apps to cover their living expenses. The rising cost of essential food items has placed immense pressure on households, leaving many with no option but to turn to digital lenders for financial relief.

Inflation’s Impact on Daily Life: The skyrocketing food prices have significantly affected daily life for ordinary Nigerians. Essential commodities, such as bread and rice, have seen substantial price increases. As a result, many families have shifted to more affordable options, like beans, but are also employing cost-saving measures like cooking with charcoal stoves instead of gas.

The Loan App Solution: Nigerians are increasingly relying on loan apps to bridge the gap created by inflation. A recent study found that 27% of Nigerians, regardless of their income levels, are using these digital lending platforms to cope with rising living expenses.

Challenges for Lenders: While the demand for credit is on the rise, lenders are becoming more cautious due to the fragile state of the economy. Many fintechs are wary of issuing loans for fear that most funds will be used for consumption, increasing the risk of defaults.

Inflation Statistics: According to recent data from the National Bureau of Statistics, food inflation reached a staggering 30.64% in September, the highest in 18 years, compared to 29.34% in August. This relentless surge in food prices has left many households struggling to afford basic necessities.

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Loan App Proliferation: The surge in demand for loans has led to the proliferation of online banks offering credit facilities, primarily targeting low-income individuals. The Central Bank of Nigeria (CBN) has granted approval to approximately 161 loan apps to operate.

Rising Loan Demands: This is not the first time this year that demand for loans has surged. In the first quarter of 2023, consumer credit increased by 1.3% to N2.32 trillion. A key factor contributing to this growth was the CBN’s move to phase out old naira notes, which created a nationwide cash scarcity, forcing many to seek loans to meet their basic needs.

Loan Sharks and Unethical Practices: While online lending platforms have benefited from this increased demand, some consumers have fallen victim to unethical practices by certain loan apps. Despite reported cases of exploitative lending, Nigerians’ appetite for digital loans remains strong.

Impact of Exchange Rate Fluctuations: The continuous depreciation of the naira has intensified the demand for loans. A weaker currency results in higher prices for goods, pushing more consumers towards digital lenders. The recent fall of the naira to a record low of 1,235 per dollar further exacerbated the economic strain.

Lenders’ Response: To address the growing risk of defaults, some lending companies have tightened their lending criteria. They are now more selective in approving loans, often requesting collateral or a signed document guaranteeing consequences in case of default.

Conclusion: As Nigeria grapples with soaring food prices and record-breaking inflation, an increasing number of its citizens are turning to digital lenders as a means of survival. However, this growing reliance on loan apps is raising concerns about the potential for higher default rates, further straining the financial well-being of Nigerians.

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