Digital lenders in Nigeria are providing quick access to cash for small business owners shut out by traditional banks, but the high cost of these loans is trapping many entrepreneurs in a cycle of debt, according to a report by Dave Ibemere. The report highlights the experiences of borrowers like Kunle Ademi, a phone business owner in Computer Village, Ikeja, Lagos, who turned to a digital lender after a robbery left him desperate for working capital.
Quick Cash, Costly Consequences
Kunle Ademi had N1.2 million in his bank account but needed an additional N3 million to restock his shop after thieves stole most of his inventory. Banks asked for documents he could not provide, leaving him without the financing he needed. Days later, he saw an online advert for a loan from Easemoni, a digital lending platform. He applied and was offered N2.5 million, which arrived in his account within minutes.
Kunle accepted the six-month loan but admitted he did not check the interest rate, focusing instead on getting his business running again. Three months later, he was paying more than N600,000 each month and could no longer meet the repayments. He told Legit.ng: "I was so happy that I could have my business again." Now, he says, "I can no longer pay again."
Borrowing to Repay: The Debt Cycle
Amaka Ofu, a food seller in Lagos, had a similar experience. After completing her NYSC in 2025 and struggling to find a job, she applied for a N100,000 loan through Okash to expand her business. The repayment deadline came before she had generated enough income, so she borrowed from another app, Futurecash, to settle the first debt. As debts accumulated, she borrowed from more platforms to repay earlier loans.
Amaka told Legit.ng: "I had to take another loan of N28,000 to repay the first loan. The new loan has a six-month repayment plan, with a total amount of N58,000 due. I was desperate and had no choice. Now I am stuck with two debts." Her experience illustrates how what begins as working-capital finance can become a cycle where an increasing share of business income is committed to servicing debt.
High Interest Rates and Hidden Charges
The report lists advertised annual percentage rates (APRs) for several loan apps, which can vary based on the amount, applicant, and repayment period. For example, Branch offers loans up to N50,000 with APRs between 60% and 120%, while Fastfund charges up to 360% APR on loans up to N50,000. Palmcredit offers up to N100,000 with APRs between 34% and 271%. These rates are significantly higher than traditional bank loans, making repayment difficult for small businesses with tight cash flows.
Sarafadeen Fasasi, national president of the Association of Financial Inclusion Agents of Nigeria, said his association receives complaints about digital lenders. He told Legit.ng: "As agent association which lastmile consumers see as bank representatives, we receive reports on how these digital apps are scamming Nigerians daily with impunity. Unfortunately, there is a feedback or issue resolution disconnect, between the regulators and the lastmile structures (Agent body/ consumers)."
Regulatory Gaps and Consumer Protection
Fasasi highlighted issues such as unexpected loan disbursements, high charges, credit-reporting disputes, and aggressive recovery practices. He noted that some loan apps auto-disburse loans without the borrower clicking to accept an offer, and some intentionally remove repayment options from the dashboard, leading to default and 10% daily penalty fees. He also said some consumers find their credit records blacklisted for loans they have repaid, only discovering this when applying for another loan.
The Federal Competition and Consumer Protection Commission (FCCPC) has introduced regulations to improve transparency and accountability in the digital lending sector, but challenges remain. Some apps that are not on the FCCPC's approved list remain accessible online. For example, Cashpal appears on the FCCPC's delisted list but is still available on the Google Play Store under the name Kashpal. Other apps like Hi Credit Loan App Nigeria, Futurecash, and XLoan Quick Money App, SmartNaira are also accessible despite not being on the approved list.
The report notes that the SME financing gap in Nigeria is estimated at about N48 trillion, according to a 2026 assessment by the Centre for the Promotion of Private Enterprise (CPPE). SME credit accounts for about 1% of total bank credit, compared with an average of roughly 5% across sub-Saharan Africa. This gap pushes entrepreneurs toward digital lenders, but the high cost of credit remains a central issue.
Simeon Edigbe, a financial expert, advised borrowers to focus on the total repayment amount, not just the loan amount. He cited an example of a loan offer providing N47,000 for 42 days, with N19,908 in interest and total repayment of N67,308, which is about 42.4% of the amount borrowed. Edigbe said: "My advice: Stay off them. It's only going to make your financial situation even worse. They aren't setup to help you but enslave you to them."
For SMEs, the central issue remains the cost of credit. Kunle's N2.5 million loan requires a total repayment of N4.07 million within six months, representing 62.8% of the amount borrowed. This burden can consume money needed for stock, employees, or suppliers, leading to further borrowing and a cycle of debt. Fasasi believes regulators need non-conventional feedback channels and to work with lastmile structures to ensure sanity in the sector.
