Hardship: Increasing numbers of Nigerians are turning to loans to meet their financial needs.

Consumer loans taken by bank customers increased by 34 percent year-on-year to reach N2.64 trillion in the first half of the current year, driven by a growing demand from households relying more on borrowing to cope with the rising cost of living.

Household incomes are under pressure due to continual increases in the prices of goods and services, resulting from factors such as the depreciation of the naira, food supply gaps, and other environmental circumstances, including security concerns.

The National Bureau of Statistics (NBS) recently reported a 27.33 percent inflation rate for October 2023, marking the 10th consecutive monthly increase, with food inflation at 31.52 percent.

The surge in consumer loans is also attributed to initiatives undertaken by banks, such as digital innovations, simplified processes with minimal documentation, improved product design, flexibility, increased publicity, and enhanced customer engagement.

According to the latest data from the Central Bank of Nigeria (CBN), the 34 percent year-on-year growth in the first half of 2023 is the highest in four years, since the introduction of measures in 2019 to boost loans to the economy, including the Loan-To-Deposit Ratio (LDR) of 65 percent.

The CBN Economic Report for the second quarter of 2023 revealed that consumer loans increased to N2.64 trillion by the end of June 2023, compared to N1.93 trillion at the end of June 2022, representing a 34 percent year-on-year growth.

The rise is 31 percentage points higher than the 5.0 percent year-on-year growth recorded at the end of June 2022. Additionally, consumer loans showed a quarter-on-quarter growth of 12.2 percent from N2.35 trillion at the end of the first quarter of 2023.

The CBN attributed the improvement in consumer credit to increased demand for personal loans and reinforced enforcement of the Loan-to-Deposit Ratio policy.

The increase in demand for personal loans is linked to the higher cost of living resulting from persistent price hikes and the continuous depreciation of the naira.

Experts and analysts suggest that rising inflation and currency depreciation have reduced real income for households, forcing them to seek debt financing to meet existing obligations and bridge financial gaps.

Banks have responded by implementing measures to make consumer loans more accessible and affordable. These measures include digitization, enhanced product design and flexibility, increased marketing efforts, and visibility.

Various banks, such as Access Bank, UBA Plc, and Union Bank, have leveraged technology to simplify loan applications, minimize documentation, and provide instant disbursement through digital platforms. The marketing of personal loan products has also been a crucial tool in influencing loan uptake and driving demand generation. Banks are adapting their loan products to cater to a wide range of consumer segments and needs, with a focus on inclusivity.