Online microcredits in Nigeria: what are they and how do they work?
It is considered, mainly, an alternative that allows the applicant to access a loan to have liquidity...
We will be brief: online microcredits are loans of small amounts of money that are processed online. The main objective of this type of loan is to allow people who do not have access to traditional credit through any financial institution to join the banking system.
These mini loans are characterized by their agile process that is mainly based on an online application form, allowing the applicant to avoid long lines and complicated paperwork to process it.
What are microcredits?
Let me rephrase how I defined it earlier; Microcredits are “small amount loan intended for low-income borrowers who would have difficulty obtaining it from a traditional credit institution.”
In other words, microcredit is an alternative that allows the applicant to access a credit to have liquidity and be able to acquire a good or pay a debt or service, and sometimes, with the advantage of choosing the amount to request and the term to pay. depending on the platform used.
Although there is the possibility of processing this type of credit traditionally, online microcredits are increasingly positioned among the population and the financial market since they are a way for all those people who received a credit refusal through any financial entity, making your request from a simple and agile procedure.
How do microcredits work?
Microcredits are derived from the so-called microfinance, which is a system of financial services that are focused on people with limited resources, to help them improve their financial and economic conditions. These services include savings services, small loans, or even financial education.
Microfinance and microcredit are based on the belief that people with fewer resources remain in that economic situation as a result of the lack of credit and other financial services, so that small injections of capital allow the economy of those who request microcredit to improve.
In Nigeria, microcredits can be requested both in financial entities and in MFIs (Microfinance Institutions), however, the application conditions, the amount to be lent and the term to pay will depend on the granting company.
In the case of Nigerian online loans, some companies make loans that can range from N 2,000 thousand nairas to N6,000,000 million naira, which are paid in terms previously established by the grantor, commonly in a term not exceeding 2 years.
The same happens with the interest rate, which depends on the amount requested, the term to pay as well as the conditions of each entity that grants the credit to the applicant.
Types of microcredits in Nigeria
In Nigeria, there are two types of microcredit, which work as follows:
It is a loan whose conditions and scheme are based on those granted by financial entities. This is commonly granted to entrepreneurs who decide to start a business in the short term.
Due to its nature, it is necessary that whoever requests this type of microcredit have a guarantee, current identification, or a guarantee so that the loan can be authorized. The amount of this loan will depend on the granting entity.
It is a type of loan granted to a group of people (more than five) who belong to the same community that does not have a guarantee for the loan, so they must be responsible for the loan payment commitment among all the participants.
To apply for this microcredit, it is required that people know each other and trusts each other, taking into account that, despite being a group, the loans are granted to each member of the team. If any of the applicants default on their payment, the rest of the group must respond, to prevent the financial institution from reporting the situation to the Credit Bureau.
Countries, where credit markets are not developed, are equivalent to those where financial institutions have not opened the door to lend money to people who lack a credit history.