FinTech: How to Boost Alternative Finance in Nigeria

alternative finance


Nigeria is a natural habour for alternative finance because of the dysfunctional credit market. It is nearly impossible for an average Nigerian to get a decently priced loan; if the bank doesn’t out rightly reject you; you get charged an exorbitant rate. But in spite of these realities the alternative finance industry is at infancy in the country.

Alternative finance includes financial channels and instruments that emerge outside of the traditional financial system (i.e. regulated banks and capital markets).

Examples are online ‘marketplaces’ such as equity- and reward-based crowdfunding, peer-to-peer consumer/business lending, and third-party payment platforms. Alternative instruments include SME mini-bonds, private placements and other ‘shadow banks’ mechanisms, social impact bonds and community shares used by non-profit enterprises, and alternative currencies such as Bitcoin.

Peer-to-peer lending is at its infancy in Nigeria but has been thriving abroad for decades. In 2013, Google invested $125 million into San Francisco-based Lending Club, the biggest peer-to-peer lender in America, and the company’s market value peaked at $10 billion in 2014.

The peer-to-peer lenders in Nigeria such as FINT, Kiakia, Unicredit and Sure loan would benefit from investments from known local or foreign brands. The status of such brands will definitely lift the peer-to-peer industry and the beneficiary firm instantly. Besides, such injection would attract other brands to invest in the peer-to-peer industry in Nigeria.

The promoters of the peer-to-peer lending platform have governance work to do in this respect. They must get the right people on the boards of the companies and make corporate governance a culture rather an exception.

You may also read: Kiakia’s ‘Mr. K’ to Reduce Interest Rate for Unsecured Loans by24% 

A sharia-compliant peer-to-peer platform can also grow fast in Nigeria, given the country’s large Muslim population.  Beehive, the UAE’s premier peer-to-peer lender has over 8000 investors registered because of its focused sharia-compliant strategy.

The Securities and Exchange Commission (SEC) of Nigeria’s ban on equity crowdfunding is the biggest obstacle to the growth of the crowdfunding in Nigeria.  The SEC believes that crowdfunding cannot be effective in Nigeria for now because of absence of rules.  This is true. The industry must be regulated to protect the consumers. However, SEC should expedite actions on its plans to regulate the sector.

SEC of Nigeria could also take advantage of what obtains in other countries to assist in coming up with regulation for the sector. For instance, SEC US,  rules governing equity crowdfunding under Title III of the JOBS Act provides for among other things, enable individuals to purchase securities in equity crowdfunding offerings subject to certain limits, require companies to disclose certain information about their business and securities offering, and create a regulatory framework for the intermediaries facilitating crowdfunding transactions.

That equity crowdfunding could prove to be an expedient way for many struggling entrepreneurs to raise capital should not be over-emphasized. In the interest of the startup community, the SEC must act now.

Recent reports showed that African continent accounted for about $83.2-million in crowdfunding in 2015, with Nigeria accounting for between seven and eight million dollars of this.

Meanwhile the donation and reward-based crowdfunding that are excluded from the SEC’s regulatory remit has been enjoying patronage in Nigeria. However, some analysts believe that donation and reward-based crowdfunding should be fostered as a first step towards crowd fund investing.

Today, Nigeria has several donations-based crowdfunding platforms, namely,, Naturad,Imeela, Quickraiz, CasaGrupo and FundMie.

Script: Sola Fanawopo



The MD, Systemspecs, John Tani Obaro, on Why Nigerians need to use indigenous software.