Nigeria’s worsening cost-of-living crisis is pushing millions of households into a debt trap, even as digital lenders aggressively factor rising default rates into the cost of their loans. Digital loan disbursements rose to $1.63 billion last year.

Unlike a few years ago, when they began operations, digital lenders now charge nearly 20 per cent interest on one-month loans as they struggle to offset a growing number of defaulters.

While borrowers who default for extended periods may end up paying several times what they borrowed, non-borrowing users of digital-first banks also face constant pressure as lenders seek to expand their customer base.

Checks by The Guardian show that OPay, which claimed to have accounted for 57.4 per cent of the total value of digital credit disbursed last year, charges low-risk borrowers 18.9 per cent monthly interest through its EaseMoni lending platform. Compounded monthly at that rate, the interest would translate into an effective annual rate of about 698 per cent, excluding fees and other charges.

A new PalmPay customer who spoke with The Guardian yesterday said he had been offered a daily interest rate of 1.5 per cent. If compounded daily, that rate would translate into an effective monthly rate of about 56.3 per cent.

The treatment of default penalties by digital lenders is even more complicated. Except where debts are formally restructured, penalties—often calculated as certain percentages of the principal and accrued interest—may be applied daily.

For customers with poor credit ratings, interest rates are even higher, with some approaching 25 per cent monthly. A user of one of the apps who had never borrowed through it told our correspondent yesterday that she had been offered a monthly interest rate of 19.2 per cent.

Despite the cut-throat cost, short-term loans have become a means of meeting immediate needs for millions of Nigerians, raising concerns that the trend could deepen the financial vulnerability of struggling citizens.

Unlike conventional lenders, most digital lenders do not treat early facility liquidation differently. Hence, borrowers still pay principal plus full tenor interest charges even where the credit is liquidated a day after disbursement.

The shift is increasingly visible in the expansion of digital lending platforms, particularly OPay, which has grown from a payments-focused fintech into a major consumer-credit provider. The number of its quarterly borrowers surged to 6.7 million in the first half of 2026, from 3.5 million a year earlier, while income from loans overtook earnings from payment-related services.

OPay’s latest filing with the United States Securities and Exchange Commission (SEC) shows that it disbursed $927.63 million in new loans in the first half of 2026, a 204 per cent increase from $305.12 million in the corresponding period of 2025.

Its quarterly borrowers rose by about 91 per cent, from 3.5 million to 6.7 million. Income from loans reached $236.12 million, exceeding the $130.55 million it earned from payment-related services.

The filing shows that OPay offers personal loans as well as credit to micro, small and medium-sized businesses. The company estimated that its $938.3 million in new loans in 2025 accounted for 57.4 per cent of Nigeria’s total digital loan disbursements of $1.634 billion that year.

OPay is not alone in expanding credit through digital financial services. Moniepoint Microfinance Bank reported that it disbursed more than N1 trillion in loans to small businesses in 2025. Its chief executive, Tosin Eniolorunda, said the next phase of the bank’s growth would centre on credit built on payment rails.

FairMoney Microfinance Bank also reported that it disbursed more than N150 billion in loans during the same period.

Credit growth, however, does not establish a direct link with the cost-of-living crisis. Some observers say it reflects longstanding gaps in access to formal credit. Others are concerned about whether borrowers can repay their loans as their real incomes shrink.

The Federal Competition and Consumer Protection Commission (FCCPC) has granted full or conditional approval to nearly 500 digital money-lending apps, while more than 100 illegal or non-compliant platforms have been flagged, blacklisted or delisted from the Google Play Store over alleged privacy violations, harassment and other lending abuses.

The expansion of regulated lending has improved access to credit for some consumers. However, with concerns mounting over high interest charges, aggressive debt recovery and loan refinancing, analysts have warned that easier access to credit poses serious risks to households.

The expansion of digital credit is taking place against a widening gap between household incomes and living costs. As earnings lose purchasing power, some Nigerians are drawing down their savings, cutting consumption or borrowing to meet expenses that cannot be postponed.

The 2026 Access to Financial Services in Nigeria survey by Enhancing Financial Innovation and Access (EFInA), weighted by the National Bureau of Statistics (NBS), provides evidence of the shift towards consumption-related borrowing.

The survey found that 40.8 per cent of formal borrowers took loans mainly to meet expenses or finance consumption, up from 31.7 per cent in 2023. By contrast, the proportion borrowing for productive enterprises fell from 40.2 per cent to 34.3 per cent.

Formal financial inclusion rose to 73 per cent of adults in 2026, from 64 per cent in 2023, while formal credit use increased from six per cent to about 10 per cent, equivalent to 11.9 million people. Among informally employed Nigerians, formal credit use rose from five per cent to 15 per cent.

However, wider access has not eliminated repayment difficulties. The survey, which covered 18,679 adults between April and June 2026, found that 45.8 per cent of formal-credit users reported some or serious repayment stress. Only 30.7 per cent of formally included adults were classified as financially healthy.

The findings suggest that financial inclusion and financial well-being are not the same. While more Nigerians can access formal credit, many remain vulnerable to shocks that make repayment difficult.

Credit Direct’s 2025 credit landscape report also identified rent, medical bills and school fees among the reasons Nigerians borrow, highlighting the extent to which loans are being used to finance routine household obligations.

The Guardian’s cost-of-living analysis, published on September 21, 2026, estimated that a single urban worker needed N372,300 monthly to live modestly, far above the N70,000 national minimum wage. Workers surveyed spent an average of N4,500 daily on commuting, equivalent to N99,000 over 22 working days.

The analysis put the monthly cost of a basic healthy diet at N47,670. Meanwhile, allocating N125,000 monthly towards housing would still leave a worker needing to save for rent, which is often demanded a year in advance.

These pressures help to explain why short-term credit has become attractive, even when borrowing costs are high. A loan can cover a transport bill, medical expense or food purchase immediately, but it also creates a future obligation that must be met from already stretched earnings.

Although headline inflation eased to 14.63 per cent in September 2026, from 15.39 per cent in August, according to the NBS, food inflation remained elevated at 19.59 per cent. Lagos recorded the highest state food inflation rate, at 34.4 per cent.

The International Monetary Fund’s 2026 Article IV report estimated that 63 per cent of Nigerians lived below the national poverty line and that 27 million people faced food insecurity in the latter part of 2025.

Vice-President of Highcap Securities, David Adonri, said the growth should be understood against Nigeria’s longstanding shortage of accessible consumer finance.

He noted that President Bola Tinubu’s administration had promised to expand access to affordable consumer credit to stimulate demand and enable Nigerians to acquire goods without having to save for years before making purchases.

Fintechs have leveraged their extensive retail customer networks to enter the credit market, helping to fill a gap left by traditional financial institutions, he said.

Adonri, however, cautioned against attributing the expansion entirely to the cost-of-living crisis, arguing that digital lending remained at an early stage of development and could continue to grow as more consumers became aware of the available products.

“This growth trajectory could be a natural course rather than a development caused by the country’s cost-of-living crisis,” he said, adding that digital loans had nevertheless become a bridge for consumers facing desperate financial situations.

Adonri said the cost-of-living crisis had left many Nigerians unable to afford necessities, with some sharply reducing consumption and others borrowing to get by. He added that the extended-family system remained an important source of support for households struggling with daily expenses.

However, he warned against treating the growth of consumer credit as a direct measure of poverty, saying the figures needed to be properly disaggregated to establish the underlying causes.

“Growth of digital credit may not completely reveal the underlying causes without proper research and disaggregation of the figures,” he said.

Head of Research and Strategy at GTI Group, Abiodun Ogunniyi, said the numbers pointed to more than an increase in borrowers. With loan disbursements rising by 204 per cent, compared with 91 per cent growth in quarterly borrowers, the figures suggest that the average amount disbursed per borrower also increased.

Ogunniyi said investors would increasingly assess OPay as a creditor rather than simply a payments platform, particularly as lending income grew alongside credit-loss expenses.

The Chairman of the Alliance for Economic Research and Ethics, Dele Oye, has called on the Central Bank of Nigeria (CBN) and other relevant authorities to intervene over digital lenders charging annual interest rates exceeding 300 per cent.

In a statement titled The Mathematics of Marginalisation: Decoding Nigeria’s Poverty Premium, Oye argued that the country’s economic conditions were imposing disproportionate costs on poor households, which often pay more for necessities and financial services because they lack liquidity and access to affordable alternatives.

“The fundamental disadvantage of low income is the inability to access economies of scale,” he said, explaining that wealthier households could buy commodities in bulk, while poorer families were often forced to purchase small quantities at higher unit prices.

He said the same disadvantage extended to credit, with financially excluded Nigerians turning to digital lending applications where high interest charges and additional fees could compound their financial difficulties.

He cited cases in which borrowers received N65,000 but were required to repay N93,000 within seven days, adding that penalties could increase the debt to as much as N158,000 following default.

Oye argued that such practices could trap borrowers in a cycle in which those with the least financial resources pay the highest prices for access to money. He urged regulators to consider interest-rate caps and strengthen consumer protection.

OPay’s SEC filing acknowledged that interest rates on some of its Nigerian credit products were higher than those typically charged in other markets. The company said the rates were permitted under Nigerian law and broadly consistent with those of competitors.

It also warned that regulatory restrictions requiring lower rates, stronger borrower protections or withdrawal from some lending segments could affect its revenue and growth.

The risks are not limited to borrowers. OPay’s latest financial figures show a sharp increase in provisions for expected credit losses, suggesting that the expansion of lending is also bringing higher potential costs from loans that may not be fully recovered.

The company’s provisions for expected credit losses rose by 210.3 per cent to $118.36 million in the first half of 2026. The amount represented 25.3 per cent of revenue, up from 19.3 per cent a year earlier.

OPay also wrote off $113.15 million in loans during the period, a 520.5 per cent increase from a year earlier and more than the $69.95 million written off in the whole of 2025.

A financial expert, Iswell Emmanuel, argued that lenders could price credit to account for expected defaults, leaving borrowers who repay their loans to bear some of the costs associated with those who do not. He also questioned the implications of easy credit for people already experiencing financial hardship.

Senior Research Analyst at BudgIT, Victor Ejechi, linked the expansion of digital credit to stagnant real incomes and mounting pressure on household budgets.

He distinguished between productive borrowing, which generates returns that exceed the cost of credit, and consumption borrowing, which is used to meet immediate expenses. While the former can support economic activity, the latter may merely postpone a financial shortfall while adding interest costs.

Ejechi called for clearer marketing of credit products, full disclosure of borrowing costs and consumer-credit policies that encourage more productive uses of loans. He also argued that sustainable relief depended on addressing the underlying pressures on household finances, including the costs of food, rent, healthcare and education, while improving real wages.

A financial literacy advocate, Oluwatosin Olaseinde, meanwhile, cautioned prospective investors against assessing OPay solely through the familiarity of its payment application. She said its expanding lending business exposed the company to credit defaults and regulatory pressures beyond those associated with payments.

For investors, the implications of the lending boom extend beyond revenue growth. Rising loan income can strengthen earnings, but higher provisions and write-offs may affect profitability and the sustainability of expansion. For borrowers, access to credit may provide temporary relief, but the benefits depend on the affordability of the terms and their ability to repay.

The FCCPC introduced the Digital, Electronic, Online or Non-Traditional Consumer Lending Regulations (DEON) 2025 to strengthen protections for people using digital lending services.

The rules address registration requirements, disclosure of loan terms, lending practices and debt recovery, following complaints about harassment, data breaches and unethical collection methods. (Guardian)