Connecting the Dots: How Regulatory Enforcement Shapes Credit Risk Management Performance Among Digital Lending Platforms in Nigeria

Abstract

Digital lending has become a prominent source of retail credit in Nigeria, combining rapid origination with high-volume, largely unsecured loans. In this setting, regulators have tightened expectations around data protection, consumer treatment, and responsible lending, yet it is not clear whether enforcement translates into stronger credit risk management performance within lending platforms. This article examines how enforcement-responsive regulatory compliance relates to credit risk outcomes among regulated digital lenders and dedicated digital lending units in Lagos State. The analysis draws on survey responses from 185 professionals involved in credit assessment, risk management, compliance, finance and operations, and data analytics. Enforcement-responsive compliance was captured with a six-item scale covering lending requirements, privacy safeguards, consumer protection, ethical recovery, and timely reporting, while credit risk management performance was measured using seven items on default control, recovery effectiveness, portfolio quality, credit-loss reduction, and sustainable lending. Hierarchical ordinary least squares models with HC3 robust standard errors were estimated, and AI-driven predictive analytics, alternative data utilisation, macroeconomic volatility, and respondent characteristics were introduced as controls. Enforcement-responsive compliance showed a positive and statistically significant association with credit risk management performance in the bivariate model (β = .263, t = 3.708, p \< .001). The coefficient increased when technological and macroeconomic controls were added (β = .321, t = 5.909, p \< .001; R² = .424) and remained stable after demographic adjustment (β = .327, t = 5.681, p \< .001). These results indicate that compliance practices are linked to better portfolio outcomes even in the presence of advanced analytics and alternative data. Rather than operating solely as a legal overhead, enforcement-responsive compliance appears as a governance capability that supports disciplined use of data and models, more accountable recovery behaviour, and more transparent reporting in Nigeria’s digital credit market.