Why You Should Invest In Consumer Loans As A Retailer
Consumer loans revolve around the lifestyle of an average person, and this has made it a popular demand, especially in developing countries like Nigeria. Regardless of how you may feel about loans, they have continued to form part of the components that shape the economy of the nation.
Given the above, there are lots of underlying investment opportunities in investing in consumer loans in Nigeria.
The process of investing in consumer credit is quite different from stocks or mutual funds. This is because of its flexibility and risk to market fluctuations.
These loans could either be secured (backed with collateral) or unsecured (which is not supported by the assets of the borrower)
Investing in consumer loans can be a winner for the investor and here are some reasons why.
High Spending Power
Consumer loans can enhance sufficient demand by activating consumer spending and consumption. Increased consumption will automatically increase production, employment opportunities, improve the standard of living, etc.
The Rise Of Fintech
The rise of the fintech industry has contributed immensely to the growth of consumer loans in Nigeria. The Central Bank of Nigeria in its bid to encourage financial inclusion enabled a favourable playing ground for emerging fintech companies, and it has been paying off so far. The fintech institutions have influenced the competition of the financial sector to think more on a micro-level of operation than a macro.
Large Market Share, More Investment Opportunities
The number of consumer loans moved from 3m in 2014 to 4m in 2015, which is more than 30% growth in a year. The stimulation of credit to consumers has created more investment opportunities in consumer loans.
The market is only getting bigger. This exponential growth can help reduce the risk involved in investing in consumer loans
While the Central Bank of Nigeria continues to create a healthy competitive financial industry, they have also issued favourable policies to enable micro-lending in Nigeria. A good example is the introduction of Bank Verification Number, which has allowed the policies of the CBN to be more productive on a micro-level.
How Investing In Consumer Loans Work
- Individuals submit their loan applications for approval to a lending institution. The loan amount varies depending on the limit set by each lender.
- The lender crosschecks all applications with their listing criteria
- The lender now checks to confirm the information provided by the borrower
- Upon confirmation, the investor gets to buy a portion of the loan disbursed to borrowers.
- And earn interest based on the contractual agreement between the investor and the lender.
However, it is important to note that the borrower is liable to pay the interest in full to the lender. This includes the principal amount borrowed.
Challenge the old, and embrace the new – Everything is changing in the world of today, with fast, small and effective being the new form of doing things. Money is no different. The loan sector is embracing these new developments through technologies fast, and it evolves almost daily.
If you want a relatively reliable and quick form of investment that will keep your cash flow healthy as a retailer, then you should consider investing in consumer loans.
Investing in consumer loans allows investors to maximize their return on investment. This is done by minimizing idle cash which does not earn interest and negatively impact returns.