Most online moneylender loans in Nigeria are based upon the personal integrity of customers and not on the material security which they can provide. The function of lending is increasingly challenging and intellectually demanding. Not only have requests from borrowers become more varied; the use of different analytical techniques has become imperative. The present-day moneylender is faced with a gamut of lending propositions thus providing him with a practical test in risk appraisal and quality of judgement.

Personal loans

The incidence of personal loan applications presented to the moneylender is on the increase and these relate to a variety of purposes, e.g. loans or overdrafts for salary earners to meet personal needs: rents, school fees, house renovation, moving house, purchase of car or other personal consumption or investment items.

Such loans are usually for small sums and are often times referred to as petty lending. The moneylender, lending to a salary earner for consumption purpose is `like blowing the balloon which may burst with time if blown harder’ because with the strain of meeting loan repayment from his income, there will be need to augment the available fund with an additional loan until such a time that his total income might be swallowed by loan repayment. The end result might be a personal financial crisis which could jeopardize the firm’s loan exposure.

The proposition

The moneylender must ascertain the purpose of the loan and the amount sought in the light of the overall financial requirements. Sometimes, through discussions with the loan seeker, the banker finds that the purpose of the loan is not well defined. There have been instances where loans are sought for anticipatory reasons and for a variety of purposes. The moneylender is not impressed by propositions which are not distinct and ascertainable.

The amount

How much is required by the customer and how much is he contributing? Sometimes the moneylender is being asked to provide the full amount required for the customer’s need on say rent, school fees etc. one of the strong points used to assess a personal proposal is that the customer must meet at least one third of the financial requirements. This principle is simply fair if the moneylender is not to put into much stake.

Repayment

Can the repayment be met without much strain on the customer? In the case of salary earners, banks have designed personal loan application forms calling for personal data to assess the ability of the customer to meet the repayment plan.

The net monthly income is computed, while the monthly expenditure is deducted to assess the available disposable income, which can be used to meet loan repayment. A rule of thumb is that for salary earners, repayment may not exceed one third of the customer’s net income.

Depending on the net income position, the moneylender could assist either in providing the loan or declining it politely, with explanations. Usually, lenders prefer to keep personal loans short, with repayment not exceeding twelve months. In the case of rents advance or purchase of durable consumer items, it is only prudent to have the loan repaid within the period covered by rent advance or the life span of the asset purchased.

Knowledge of the customer

In determining if the customer can be trusted and assisted, the track record and in particular, credit record if he has taken loan previously must be assessed. Has he maintained a consistently satisfactory account? If a salaried person, has his salary been coming in regularly or if privately employed what has his income record been? This approach sometimes explains why lenders prefer accounts that have been long standing, so as to be able to see the track record on its operations.

Security

If the foregoing points are positive and the customer can provide acceptable securities, the loan may be granted. Because of the small amounts usually involved and the short duration of such loans, the types of securities usually provided include guarantees, life policies, stocks and shares and domiciliation of payment e.g. salaries. Nevertheless the lender must be satisfied that the securities are realizable. As for domiciliation of salaries, the customer’s employers should be requested to confirm that the salaries will continue to be paid direct to the bank or in the case of cessation of employment, benefits accruing to him will similarly be paid to the lender. Though this arrangement is fluid and sometimes fraught with risks, the proposal can be accepted depending on the reputation of such employers.