By Marcel Okeke
A seemingly innocuous ‘war’ has been raging in the Nigerian financial services space for quite some time now: the ‘war’ to checkmate the activities of mostly unlicensed and unapproved ‘banks’ of various hues that have practically invaded the banking sector. The ‘invaders’ have been variously described as ‘online lenders’, ‘loan sharks’, ‘shylocks’, among others; yet, they keep mushrooming,gnawing at and chipping off the normal businesses of banks. The activities of these ‘invaders’ have indeed irked and rattled relevant regulatory agencies to no end; thus, prompting the setting up of a joint-agency investigation and disciplinary task force to ‘smoke out’ and rout out these ‘strange banks’.
Not long ago, the Federal Competition and Consumer Protection Commission (FCCPC), the Central Bank of Nigeria (CBN) and the Economic Financial Crimes Commission (EFCC) jointly commenced rights violation investigation into the money lending methods and impacts of these so called banks. Mr Babatunde Irukera, the Chief Executive Officer of FCCPC disclosed recently in Abuja that the Independent Corrupt Practices Commission (ICPC) and the National Information Technology Development Agency were also members of the Joint Regulatory Enforcement Committee. Irukera said that the committee would lead efforts to address multiple potentially dubious conducts of certain money lenders, otherwise known as loan sharks.
According to him, the relevant regulatoryagencies have resolved to collaborate and pursue urgent enforcement action against already known violators while investigating others, as well as criminal prosecutions where applicable. He regretted that ‘the act’ was fast becoming a dominant and abusive practice targeting some of the most vulnerable personsin the Nigerian society. Many beneficiaries of the loan facilities of these voodoo banks are known to have been subjected to questionable repayment enforcement practices including public shaming and violations of privacy; and these have led to “significant and understandable consumer aggravation and dissatisfaction,” Irukera said.
The methods of these pseudo banks also include arbitrary, unjust, unreasonable, or exploitative interest rates and/or loan balances calculations, harassment and failure of consumer feedback mechanisms, among others. Irukera said: “initial inquiries demonstrate that many of the purported lenders are not legally acceptably established or otherwise licensed by the appropriate authorities to engage in the services they ostensibly provide.”
Without any iota of doubt, these pseudo banks have been blossoming on the ‘wings’ of financial technology (fintech), offering financial products and services without going through the rigours of proper registration and/or licensing by the appropriate authorities. This also affords them the ‘escape route’ from the prying eyes and scrutiny of the regulatory and supervisory agencies. Thus, ensconced in their largely arcane world, they lure unsuspecting members of the public with ‘baits’ (products) that are practically ‘whited sepulchre.’ And their victims end up paying through their nose, and could be pushed into peonage of sorts.
Owners and operators of these pseudo banks who are mostly ‘digital natives’ apply as their tool of trade what is referred to as apps: software programs that are designed to perform specific functions directly for the user (and which eliminates the boredom and burden of paperwork in conventional bankingwhen processing loans, for instance). The FCCPC & Co have, in the course of their investigations, traced ownership and ‘management’ of these apps to some digital technology giants namely Google and Apple. Indeed, the consumer protection body (FCCPC) blames the two tech giants “for the inability to trace the owners of some defaulting online money lending banks over consumer rights violations.” It has prior to this indictment, ordered Google and Apple to enforce the withdrawal of these money lending applications (apps) from their stores where evidence of inappropriate conduct or use of the apps in violation of the rights of consumers has been established.
While the FCCPC is leading in this ‘war’ from its chosen front, the Central Bank of Nigeria (CBN) has similarly been unrelenting in the effort to protect the gullible and vulnerablepublic from the dubious schemes of mushrooming ‘banks’ in the financial services space. Indeed, for the umpteenth time, the apex bank has brought to the attention of Nigerians the risks involved in patronising what it calls “Illegal Financial Operators (IFOs) who carry out their nefarious businesses of extorting money from unsuspecting members of the public with a promise of high yields that will remain what it is, false promise.” Reiterating the warning by the Financial Services Regulation Coordinating Committee (FSRCC) recently, the head of Corporate Communications, CBN, Mr Osita Nwanisobi, said the increase in the number and activities of the IFOs which portend grave risk to public confidence andthe stability of the Nigerian financial system was becoming worrisome.
Dismissing the pseudo banks as ‘Ponzi schemes’, Nwanisobi maintained that “as Nigerians, we have a role to play in stopping some of these institutions operating illegally”and insisted that “the nation must be suspicious of any institution that begins to ask prospective investors to bring their money with offers of outrageously high interest rate.”One of the dangers in patronising these IFOsis that most of them are fronts for drug-related businesses, money laundering syndicates, incorrigible tax dodgers and other similar rogue matters that negatively impact on the smooth operations of the financial systems not just in Nigeria but elsewhere in the global village.
The Securities and Exchange Commission (SEC) has also been part of this raging ‘war’ against the unrelenting perpetrators of ‘Ponzi schemes’ in Nigeria. On March 14, 2022, the apex capital market regulator wielded the big stick, and shut the offices of some organisations including Oxford International Group/Oxford Commercial Services, Farmforte Agro Allied Solutions Limited/Agropartnerships, VEKTR Capital Investment/VEKTR Enterprises. In doing this, SEC says: “the Commission hereby notifies the investing public that none of these entities is registered by the SEC and the investment schemes promoted by them are also not authorized by the SEC.” The Commission warned that “it is unlawful for any private enterprise…to solicit funds from the public by whatever means to fund its private venture in contravention of the Investment and Securities Act, 2007.”
As the war against the ‘online lenders’, voodoo banks or ‘Ponzi schemes’ is intensifying, the financial services ecosystem keeps getting populated by some more new entrants. This scenario is already heightening competition in an already ‘tight’ banking sector. Payment Service Banks (PSBs), Agency Banks and others are joining in their numbers. Just a few days ago, the apex bank gave final nod to MTN Nigeria to launch it PSB, marking the telecom company’s entry into the already ‘crowded’ banking industry. For sure, this development is bound to further raise competition, particularly amongcommercial banks and Fintechs; it could alsoadvance financial inclusion by providing a varied and heterogeneous range of financial services to the hitherto unbanked people.
However, all these pose challenges, both to the apex bank, other regulatory agencies and the banking public: the task of consistently separating the ‘apples’ from the ‘oranges’. In other words, the banking public (all cadres) must consistently be educated on the rightful players and the fake and fraudulent ‘invaders’that must be routed out. At present, too many desperados (especially fintech experts) are flooding the financial services industry in the quest to reap bounties, even as the economy lies supine.