6 Challenges With Recovering Consumer Debts in Nigeria

In over 25 years in the field of debt recovery in Nigeria, I have found that the most difficult debts to recover are consumer or individual-owned debts. Recovering money owed by a limited liability company is not too difficult if the company is still doing business. All it takes, usually, is getting the company name and an address. Even if the company has changed physical address, a search at the Company Registry will reveal its registered address and the names and addresses of its shareholders/directors. Once those are secured, contact can quickly be established with the persons in a position to do something about the debt. If the company does not respond to suasion after it has been located, a court action can be instituted, service of process can be effected at its registered address and, after a trial (which may or not be contested), judgment executed on its bank account(s) and any assets it may own.

When it comes to individuals, recovering debt is a whole different story.

I had a case recently where the debtor had absconded from the client’s house leaving over N6m in rent owed. I filed an action to recover the rent and got judgment when the debtor did not show up to defend the claim. Thereafter, I obtained a garnishee order to attach the debtor’s bank accounts and served it on the banks where I suspected he might have had accounts. The banks came back with a request for further information of the debtor as they had multiple accounts in the same name! I asked the client to provide information such as his phone numbers, email address, state of origin, Bank Verification Number, National Identification Number, Driving License, International Passport, photograph, etc. The client only had the phone number and state of origin. It turned out that those didn’t match up with what the banks had in their records and that was how we lucked out. The debt has still not been recovered despite a subsisting court judgment and garnishee order.

This is not always the case with consumer debts as there are instances where I have succeeded in recovering such debts under similar circumstances as the above example.

About 2 years or so ago, I did a survey among a cross-section of private school owners in Rivers State as part of an information-gathering project. The results indicated that as much as N5bn was trapped as unpaid debt to an average of 3,000 private school owners that accumulated over the preceding five (5) years by parents who simply removed their children from the school without paying overdue fees and relocated without a forwarding address. Efforts by the school owners to get the parents to pay were unsuccessful and most of them had simply written off the debts. Most of these school owners were also deeply indebted to their banks and were barely able to meet up with payments. Extrapolate these figures to 36 states and the Federal Capital Territory and you will have an idea of the problem caused by unpaid consumer debt.

So, why is it so difficult to recover defaulting individual or consumer debts in Nigeria? Let’s examine a few reasons:

1. Lack of proper record-keeping. Most small business owners who extend credit to customers do not keep adequate records. When a debt goes bad, the first thing a debt recovery agent would like to see is any document where the customer has admitted owing the debt or which shows acceptance of the goods or service by the customer with the price(s) clearly stated on it. It could be a receipt, delivery note, etc. A document like this removes the possibility of a dispute over the amount of the debt and shortens the waiting period between initiation and conclusion of a court action if the customer refuses to pay upon demand. 3 years ago, I got a call from someone in Ogun State to recover a debt from a customer he supplied goods to in Port Harcourt. I found that the customer had moved to an unknown address in Port Harcourt. However, the creditor was able to supply his phone number, email address, the name of his bank/account number, and his Facebook page. Matters came unstuck when I asked for proof of admission of the debt (without that proof, the creditor would have to come to Port Harcourt to give oral evidence in court because the first call I made to the debtor was not fruitful). At that point, the creditor decided not to pursue the matter further. The travel time and effort involved were too much for him to handle.
2. Inadequate public database. When a debt goes south, you want to be able to reach the debtor quickly. Most Nigerian cities are rapidly expanding and new residential areas are springing up without much municipal control. There are literally hundreds of new streets that are not reflected in any government municipal database, so finding someone at the address provided becomes difficult. If the person moves to a new address, it becomes next to impossible.
   Also, public records of births, deaths, etc are sketchy, to say the least. Registration of births and issuance of birth certificates in Nigeria is not done at point of birth. A parent must go to the nearest registry (now operated by the National Population Commission) to register the birth of the child. There is no independent corroboration of any information provided by the registrant. This makes it tough to get infallible information about an absconding debtor’s history from where a profile can be built which can be used to trace him. Also, the different government agencies in charge of public records maintain separate databases. The lack of a centralized public database makes it difficult to make a one-stop search to find anyone.
3. Official secrecy and bureaucracy. Getting information from government offices in Nigeria is like pulling teeth. The red tape involved is mind-boggling. It may take a Freedom of Information action to get information from government. Who has that kind of time and energy when time is of essence?
4. No knowledge about or access to credit check facilities. Most people would not give credit to customers if they knew such customers have a bad credit history. There are some credit bureaus in Nigeria but individuals do not have access to them except they are registered with the bureau. Again, most people do not know about them or that they can lodge complaints about unpaid debts to the bureaus.
5. Speed of litigation. The court system in Nigeria is notoriously slow. A debtor with a bad defence but a good lawyer can delay your case in court for years with little or no penalties when judgment is eventually entered in your favour. A debtor kept us in court for 4 years over a claim to which he had no defence. On the day we got judgment, we found out that he had moved out of his premises without a forwarding address. Fortunately for the client, the debtor was an avid Facebook user and gave a clue to his current location in an unguarded post. We showed up one morning unannounced. We left with half of the amount owed and a post-dated cheque for the balance. The cheque cleared. Unfortunately, the court did not award any costs to compensate for the time spent in court.
6. Cost of recovery. Most debt recovery agents in Nigeria are lawyers/law firms. They usually charge upfront fees before taking on a case with no guarantee of recovery. The Rules of Professional Conduct for Legal Practitioners 2007 (Rule 51) forbids lawyers from paying the expenses of litigation except there is an agreement for those expenses to be reimbursed by the client. A lawyer/law firm who finances your case on the understanding that s/he will share the proceeds with you MAY be guilty of maintenance/champerty and any such agreement with you may be unenforceable by the lawyer. So, a lawyer will require you to pay or reimburse the cost of litigation even if he charges a contingency fee. Even if you lose the case, you’re still liable for the expenses incurred by the lawyer. For someone who has already lost money to a debtor, this looks like throwing good money after bad so many would prefer to simply write off the debt. A good debt recovery agent who works on a no recovery, no fee basis is the solution for such a creditor.

I hope this article was helpful. Please drop comments in the box below.