Credit is one of the surest ways to grow an economy and bring smiles to the faces of small business owners, artisans trying to finish a supply, and fathers trying to provide for their families. If you’re a lender reading this, you’re probably thinking you made the right decision choosing this line of business right? However, do you operate with responsible lending practices?
But lenders are given a new bad name every other day and dragged in the mud publicly because of high interest rates, aggressive collection practices, poor data protection, etc. (oops..plot twist).
How to lend responsibly
The decision to save yourself from these image challenges by being a responsible lender can be quite rewarding. Let’s explore what lending responsibly means:
Don’t be in a haste to lend to everyone and anyone
We understand that the ambition to single handedly cater to every credit-seeking Nigerian can be quite the propellant but don’t get careless. It’s okay and imperative actually, to define your target customer base. What particular segment of the addressable market of those without access to credit do you want to cater for? Who did you build your proposition for? These are very important questions that you have to think about critically because you are multiple times more likely to succeed if you have a focus.
Ensure your borrowers have the means to pay back
It’s great to look at the numbers of loans booked per month and beam with joy with your growth but are you doing your due diligence or cutting corners for the “bigger picture?” Do the proper checks; analyze customers’ statement data and ensure they have sufficient and steady inflows before giving them loans. It is your responsibility as a lender not to pile on loans that customers can’t afford and inadvertently drive them to irresponsible behaviors.
Don’t buy people’s data and start sending spam messages to get loans
Hard and smart work pays off; acquire customers ethically and organically. Digital and other traditional marketing approaches are well known; use them if you must. It’s not a show of good faith to aggressively pursue borrowers using data from shady sources.
Don’t de-market your fellow lenders
Your businesses might be competing but you’re all working together to solve the same problem; closing the credit gap. And that is a N74 trillion playground that’s big enough for a lot of players. Your business can thrive without smearing the reputation of other lenders.
Don’t hide fees or lie about charges
Now, why would you do this? Even if you get away with this (which you probably might as the borrower only realizes after the fact) you’re essentially limiting your long-term growth. Every customer who might have fallen victim to this will sing the tale of “once bitten, twice shy” and just pass you by when next they need a line of credit. Be open about fees and charges, borrowers need to understand the makeup of their loans and plan accordingly. The added bonus is those that can’t afford these loans will walk away and save you the pain of bad loans.
Treat your borrowers with respect
Having to take a line of credit is not a shameful thing, treat your borrowers with dignity; you would not be in business without them. Top notch customer support plays such a huge role in the success of a lending business — borrowers need to feel supported through their credit journey.
Recover loans ethically
Yes, we know it’s frustrating to have borrowers owe past their loan due date and recovering 100% of all loans disbursed can be a tedious and daunting process but don’t resort to misusing borrowers’ data to humiliate them or harass their family and friends to force them to repay, make use of only ethical ways to recover loans .
Responsible behaviors to the industry
As a lender, apart from your responsibilities to your customers, you also have a responsibility to the industry at large to play your part in protecting the lending ecosystem from bad actors. Those who display irresponsible borrowing behavior on your platform might repeat such behaviors elsewhere and hurt the industry; undermining the capacity to tackle the credit gap.
Report your loan performance to the credit bureaus (both good and bad loans) and report fraud and illegalities to the required government agency. It’s not sufficient to just blacklist a borrower and bar them from using your services but collaborative effort is best to prevent bad borrowers from misbehaving elsewhere and gaming the overall system.
Apart from reporting bad actors, you also owe it to the industry to shy away from irresponsible lending practices as they draw negative regulatory attention to the industry. This was the case with the government clamping down hard on lenders late last year because a few industry players broke the data privacy laws. Establishing a lending business already has a few hurdles to scale, don’t add to them and make things worse for everyone (pretty please).