Many Nigerians are finding themselves trapped in a cycle of debt as they borrow to cover basic needs such as food, rent, and school fees. This has become a last resort for individuals, with personal loans rising to an estimated N2.06 trillion, accounting for nearly two-thirds of outstanding consumer credit. The increasing reliance on loans is a result of the high cost of living, with expenses for food, transport, and medical care continuing to rise.
The Central Bank of Nigeria (CBN) reported that economic activity in the country remained weak in May, with its composite Purchasing Managers’ Index at 49.60 points, slightly higher than 49.40 points in April but still below the 50-point threshold separating expansion from contraction. The CBN attributed the contraction to subdued demand, declining new orders, and elevated production costs. Weak consumer spending and higher energy-related costs also put pressure on the industry and services sectors.
According to the CBN, borrowing for household assets declined from 25.2 per cent to 23.4 per cent, while coping/consumption purposes rose from 31.7 per cent to 40.8 per cent. The report warned that credit should build productive capacity and not produce distress. Formal credit use increased from six per cent of adults in 2023 to 10 per cent in 2026, with about 11.9 million Nigerians borrowing from regulated providers.
When informal sources were included, 36 per cent of adults had access to some form of credit. Credit use among informally employed Nigerians tripled from five per cent to 15 per cent, while borrowing among people aged 18 to 35 rose from four per cent to 10 per cent. Business owners recorded an increase from four per cent to 10 per cent, while farmers rose from two per cent to six per cent.
However, the report found significant distress among borrowers, with about 45.8 per cent of formal-credit users reporting some or serious repayment stress, while 83.8 per cent experienced ongoing financial stress. Many Nigerians, like civil servant Blessing Ebiye, have taken loans to meet urgent personal and family obligations rather than financing businesses. Ebiye borrowed N300,000 from a fintech lending platform to pay her house rent and settle urgent household needs.
The high interest rates, short repayment periods, and aggressive recovery methods by lenders are putting borrowers under intense pressure. Some individuals are borrowing from one lender just to pay another, with no end in sight. Traders say their businesses are folding, while civil servants watch deductions swallow their pay. The situation has become a challenge for households and businesses, with many calling for a solution to the debt trap.
The growing dependence on personal loans comes at a time when consumer spending remains weak, and household incomes are under pressure. Experts warn that if not addressed, the situation could lead to more financial distress for individuals and businesses. The CBN and other stakeholders must work together to find a solution to the debt trap and ensure that credit builds productive capacity rather than produces distress.
Key points
- Personal loans in Nigeria have risen to an estimated N2.06 trillion.
- 45.8 per cent of formal-credit users report some or serious repayment stress.
- 83.8 per cent of borrowers experience ongoing financial stress.
