Fairmoney, a Nigerian consumer-focused lending fintech, has reported a remarkable 62% increase in gross revenue to ₦121.9 billion in 2024, according to its unaudited financial report. The company's profit after tax also rose to ₦5 billion from ₦780 million in 2023, marking a significant improvement in its profitability.

The growth in revenue is largely attributed to the company's shift towards relying on customer deposits for its lending operations. For the first time since Fairmoney began accepting deposits in 2021, customer deposits funded more than 80% of its loan book, driven by a sharp increase in deposits from ₦2.9 billion in 2021 to ₦72.9 billion in 2024. This shift has allowed Fairmoney to reduce its reliance on external borrowing, which fell from over 80% in 2020 to less than 10%.

Fairmoney's strong growth in customer deposits is a result of its growing customer base, increased customer loyalty and trust, innovative products, and competitive offerings, according to the company. The fintech aims to offer customers attractive rates that provide them with positive real returns, despite the high inflationary macroenvironment.

The reliance on customer deposits has also lowered costs compared to borrowing from other sources, such as commercial papers, to loan its customers money. This has improved margins, allowing the business to potentially increase its profitability in the immediate future. Fairmoney is continuously optimizing its funding structure to ensure a balanced mix of retail deposits, HNI deposits, corporate deposits, and other financing sources such as debt notes and commercial papers.

Fairmoney generates most of its revenue from interest on loans issued to customers, which rose by 57% to ₦116 billion in 2024. As revenue grew, the fintech also improved its profit margin, increasing from 1% in 2023 to 4.79% in 2024. Fairmoney keeps roughly ₦5 from every ₦100 it makes.

However, the company's interest expense was ₦10 billion, a slight increase from 2023's ₦8.3 billion. The lender made only ₦5 billion in non-interest income, split between ₦3.8 billion from fees and commission and ₦1.7 billion from other operating income. Despite this, it spent ₦41 billion on operating expenses, resulting in a high cost-to-income ratio: the fintech spends ₦78 to make ₦100.

After stabilizing in 2023, Fairmoney's impairments on loans and other assets rose by 30% to ₦59.4 billion in 2024. This marks the first increase in two years, following a period in which the fintech maintained impairments at around ₦45 billion after a sharp 159% spike in 2022.

The rise in impairments has pushed Fairmoney's non-performing loan (NPL) ratio to a staggering 86.8% of its ₦68.4 billion loan book. However, this figure is inflated by the company's accounting approach, which treats every loan as impaired until it's repaid. As a result, the NPL ratio could drop significantly if repayments are made on time. While Fairmoney's cost of risk—measuring loss provisions as a percentage of loans—improved to -49.7%, it remains high.

Fairmoney's net interest margin stands at 64.72%, a seemingly healthy level for a lending business. However, this margin relies heavily on high-yield loans with steep interest rates—often around 10% monthly. While this strategy drives short-term profitability, it also heightens credit risk, as reflected in impairments exceeding 85% of gross loans.

The lender's assets grew by 55% year-on-year to ₦99 billion, mainly driven by a ₦30.4 billion increase in its loan book in 2024. However, its cash on hand fell by ₦2 billion to ₦8.1 billion, while prepayments (loans paid before due) rose sharply from ₦1.3 billion to ₦9.3 billion.

Despite the growth and improved profitability, Fairmoney's consumer lending business faces credit risks. While its rapid growth and high asset yields are notable, its long-term sustainability depends on improving underwriting, risk management, and cost efficiency.

In conclusion, Fairmoney's revenue growth and improved profitability are significant achievements, driven by its shift towards customer deposits and improved funding structure. However, the fintech must continue to address its credit risks and high cost-to-income ratio to ensure long-term sustainability and growth.