For any lending business to be profitable, a lender must be assured of recovering their loan. At its core, the lending industry is built on the trust that borrowers will fulfill their obligations and repay the funds borrowed.
Unfortunately, in under-developed countries such as Nigeria, credit is not widely appreciated, and the value or importance of credit is ignored. Hence the average Nigerian will take a loan and disregard any prompt for repayment and believe they are entitled to these funds. This fosters bad blood between lenders and borrowers and forces some lenders to take extreme measures that are sometimes highly unethical and frowned upon.
With Lendsqr however, this is not the case. We’re in the business of changing Nigeria’s (and Africa’s) approach to credit one lender at a time. And smart lenders like yourself, choose the Lendsqr way. At Lendsqr, we continue to innovate and provide holistic solutions that give lenders peace and help them recover their funds. In this document, we detail the best ways to ensure your money gets back to you.
1 - What to do before you give out a loan
Recovery done right starts at the point of origination. It goes without saying that before you give someone a loan, you have to know them to a certain extent. Applying good KYC standards ensures that you get enough information on your potential borrower to be comfortable enough to give out a loan.
1.1 Collect and review KYC documents
It is important to collect KYC documents that attest to a customer’s identity. These documents help you as a lender build a persona around your customer. Valid government IDs, Employment IDs, Proof of Address or give you pertinent information about your customer; that is, who they are, where they work, where they live and so on.
As a lender, these documents serve as some sort of security and can help you understand your borrower. It also calls borrowers to order as they understand that they can easily be traced with the information they have provided you with.
How Lendsqr does this;
Lendsqr makes provision for several KYC documents and beyond. As a lender with us, you also have the opportunity to create niche/custom KYC document requirements that serve the loan product you are offering.
On our platform, we do an image comparison with the user’s selfie and ID image to ensure that the user is truly who they say they are.
Based on your loan ticket size, we advise on the type of documents to request for. For example, nano loans are all about ease and speed. A government ID card is good enough for customer validation. For salary loans, employment IDs or payment slips are good documents to collect from your potential borrower. On Lendsqr, we also allow you to collect official emails and you can vet the customer’s company and active employment with these emails.
1.2 BVN / NIN Validation
In Nigeria, BVN or NIN are the unique identifiers tied to an individual. Unlike other means of identification, these numbers pull a user’s identity across various platforms and services. While the NIN is relatively new, the BVN has been around for quite some time and it is a sturdy identification tool.
With the BVN, you are assured of the user’s identity across banks, credit bureaus, financial services, and much more. This makes it a strong and valuable means of getting your user’s information.
How Lendsqr does this;
At Lendsqr, customers can only onboard on your platform after validating their BVN with the right information that the BVN holder should know
At the point of a loan application, we also go a step further to compare a selfie image we ask users to provide with their BVN image to ensure that this person is who they say they are.
1.3 Implement a good RAC / scoring system
A good risk acceptance criteria (RAC) is like your armor against the shrapnel that are bad borrowers. With a good RAC or scoring system, you can be rest assured of securing the right kind of borrowers for your specific product.
How Lendsqr does this;
Lendsqr has a proprietary decision engine called Oraculi that combines over 100 parameters to determine the eligibility of a customer.
If you don’t have a dedicated RAC, Lendsqr create a default decision model to have you get started right away.
1.4 Make use of a credit bureau
Nigeria currently has 3 credit bureaus and they serve as the gatekeepers to the credit information of borrowers in Nigeria. Certain organizations are required to submit borrower’s credit information to the credit bureaus in Nigeria thus building a rich database of credit performance
As of May 2023, Lendsqr did an internal study to determine how credit bureaus would have helped lenders who did not utilize their service. We found that collectively, 68% of the bad loans they had would have been prevented if they used a credit bureau to vet users' past performance.
How Lendsqr does this;
Lendsqr has integrated with all credit bureaus in Nigeria and actively makes use of both CRC and First Central credit bureaus and you can implement these providers within your decision model
We also took it a step further by allowing the combination of both credit bureau providers within a single decision model. You can learn more about this from our blog post here.
1.5 Implement direct debit systems
Direct debit is a system of collection that allows the account holder to give permission to another entity (in this case, the lender or the lending institution) to remove money from their account. For this to happen, borrowers must have tied a direct debit mandate as a loan repayment method during the loan application process.
For higher ticket loans, it is always advisable to activate Direct debit as an alternative means of repayment in addition to the default Debit card.
How Lendsqr does this;
- Lendsqr is integrated with Nigerian Interbank Settlement Systems Plc. (NIBSS) which is a direct debit provider. Once activated by the borrower, lenders have a right to remove money from the borrower’s account using Remita.
- The amount on the mandate is a loan multiple set to account for penalties for late payment or the borrower defaulting on their loans. The loan multiple is currently set to 2 and its duration is set to two years. This is done in case the user defaults, you will be able to recover all penalties.
1.6 Speak to potential borrowers before granting a loan
As much as you may try, some customers can always present good data when applying digitally. But their dodginess becomes apparent when you speak to them on the phone. We strongly suggest that when dealing with a new customer for the first time, get on the phone to speak with them.
Watch out for red flags such as:
Hard to get them on a phone. If you can’t reach a customer when they are applying for a loan, be very sure you cannot get them on the phone when the time comes to pay back
Deliberately mangle some of the data they have previously given you and see if they would correct you. If for example, you confirm their year of birth is 1992 when they put down 1990 and they never corrected you, then they are not the true
When you ask for more information about where they work or what they do, if you sense uneasiness or sketchy answers, decline the loan.
2 - What to do before a loan is due
As the due date of a loan draws near, you must begin to contact the user to prep them for their imminent repayment. This gets customers in the right headspace and prepped for repayment.
At this stage, communication is critical and you may want to ensure that their loan repayment is top of mind to prevent “tales that touch”.
2.1 Send reminders and engage before the due date
When a loan has gone beyond the due date, the engagement with the borrowers should not end. Borrowers should be engaged via different channels of communication - Phone calls, WhatsApp, Text messages and Emails.
Following a recent pilot test we did with some key lenders, the Lendsqr team discovered that engagement via SMS proved more effective as opposed to just emails, as the rate of their loan recovery improved significantly;
How Lendsqr does this;
Lendsqr sends automated emails and SMS to borrowers with almost due and past due loans. The email usually has a uniquely generated payment link that users can access to make payment without having to log into the app.
3 - What to do when a loan is due
Now the due date has come and maybe even elapsed. What do you do?
3.1 Send continuous reminders after the due date
When a loan has gone beyond the due date, the engagement with the borrowers should not end. Borrowers should be engaged via different channels of communication - Phone calls, WhatsApp, Text messages and Emails.
Following a recent pilot test we did with some key lenders, the Lendsqr team discovered that engagement via SMS proved more effective as opposed to just emails, as the rate of their loan recovery improved significantly
How Lendsqr does this;
- Lendsqr sends automated emails and SMS to borrowers with almost due and past due loans. The email usually has a uniquely generated payment link that the users can access to make payment without having to log into the app.
- Lendsqr also provides lenders with up-to-date reports that contain the data of borrowers with past due loans so lenders can engage with them from their end. We recently started experimenting with a link that can directly send WhatsApp messages to these customers if the number does exist on WhatsApp.
- Lendsqr DOES NOT allow customer harassment or abuse of customer’s information. All collection methods we use are ethical and you can learn more here.
3.2 Kick in automated collection systems
Now it’s time for your direct debit collection systems to come in to play. These systems take the burden of manual reminders and attempts off you and run ahead to get your money back.
How Lendsqr does this;
Lendsqr has a bespoke collection engine that attempts to charge customers cards when their loans are due. This system runs continuously until your funds are secured.
If direct debit mandates have been implemented, our automated collection system triggers debit instructions to pick up funds from the user’s account.
3.3 Engage recovery agents
When a borrower is unable to repay a loan, and every step highlighted above has been deployed, the lending institution can initiate the use of loan recovery agents.
During the loan recovery, agents should ensure that the process is beneficial to the lender while also respecting the borrower’s legal rights and obligations.
Red Flags to look out for
The customer is hard to find during the loan application process: In addition to the KYC processes facilitated by Lendsqr, it is also important to engage with customers during the application process. Some of the instances you may have to engage with the lenders include; inaccurate documentation and information, further KYC validation etc.
In the event that the borrower is unresponsive when trying to reach out to them either via emails, phone calls or WhatsApp after a given period (usually 24 -48 hours), such borrowers pose a red flag, as this may be a sign that they would be hard to find during the loan recovery process. Such borrowers should be prevented from taking a loan.The customer is trying to quickly pay back smaller amounts so they can get bigger ones: In some cases, you may come across borrowers who take loans frequently and beyond the average. Some cases, they may take up to four or five loans in a week. While some of these borrowers may be legit, there are cases where the customer is attempting to game your decision system/process and go for bigger loan amounts so they cash out big.
Once they are given these larger loan amounts because they seemingly build their credit history with you, they bolt; never to be seen again. Be cautious when giving loans to such customers.
Challenges
While these to dos are fantastic, we are aware of how challenging they can be to incorporate without a consolidated system in place. Which is why Lendsqr does all the heavy lifting for you and presents the relevant information you need on the admin dashboard. To learn more about our collections and recovery systems, reach out to our product specialists via growth@lendsqr.com and they’d be happy to help!