6 Top Compliance Requirements for Money Lenders Operating in Nigeria

Money lending serves as an indispensable consumer credit device in Nigeria and other parts of the world.[1] The cost of running enterprises and satisfying personal needs are unquestionably high and to help alleviate these difficulties, money lenders have filled the void and eased up the difficulty of getting funds through the traditional banking system. Regardless of the societal benefits, money lending is a highly regulated business venture.[2] In Nigeria, different states have various laws that govern money lending business, including their relationship with customers. If you intend to operate a money lending business or you are already operating one, this article is for you.

How Do You Know You Are a Money Lender?

In case you are wondering what activities qualify you as a money lender, Section 4 of the Money Lenders Law of Lagos State provides “that a person who lends money at interest or who lends a sum of money in consideration of a larger sum being repaid shall be presumed to be a money lender until contrary is proven.”  Therefore, any individual or company carrying on the business of lending money at a specified interest rate is a money lender.

However, the following are not money lenders according to the Money Lenders Law of Lagos State:

i.               Any society regarded under the Co-operative Societies Law; or

ii.              Any body corporate, incorporated or empowered by special enactment to lend money in accordance with such enactment; or

iii.            Any person bona fide carrying on the business of banking or insurance or bona fide carrying on any business, not having for its primary object the lending of money, in the course of which and for the purposes whereof he lends money; or

iv.            Any pawnbroker licensed under the Pawnbrokers Law where the loan is made in accordance with the provisions of the Pawnbrokers Law and does not exceed the sum of forty naira.[3]

What are the Requirements for Operating as a Money Lender in Nigeria

To operate in Nigeria, money lenders must:

1.     Obtain Money Lender’s License: Obtaining a money lender’s license is a pre-requisite to operate as a money lender in Nigeria. The process differs from state to state, however for this article we shall focus on the process for obtaining the license in Lagos and Abuja.

a.     Lagos State: In Lagos, a money lender’s license is issued by the state in which the company intends to operate. Initially, the Magistrate Court issues a money lending certificate, which is then processed by the State Ministry of Home Affairs into a money lending license.

The procedure is as follows:

i.      The applicant must register as a Limited Liability Company with the Corporate Affairs Commission (CAC), with at least two directors.[4]

ii.     An application is then submitted in the prescribed format to the Chief Magistrate of the district where the lending company is located.

iii.    Upon a successful application, the court issues a Money Lenders Certificate (Form B) and a letter addressed to the Permanent Secretary of the Ministry of Home Affairs recommending the issuance of a Money Lenders License.

iv.    The applicant must then apply to the Police for a clearance report on the directors of the money lending company.

v.     Thereafter, an application is submitted to the Lagos State Ministry of Home Affairs, along with the following documents:

·       Police Clearance Certificate for the two directors of the company.

·       A reference letter from a commercial bank in Nigeria.

·        Payment of application and processing fees.

·       Incorporation documents.

·       Tax Clearance Certificate of the Company .

·       Document showing the office address of the Company

vi.    After submission, the Ministry will inspect the business premises. The license is issued upon completion of inspection. The license is valid for one (1) year and must be renewed annually.

b.     Abuja (FCT): The procedures in Lagos also apply here. However, the key difference is that applicants submit their license application directly to the Chief Magistrate Court, where it is subsequently assigned by the Court to a magistrate. The magistrate issues both the certificate and the license to the applicant. The license remains valid for one (1)  year, and the applicant must renew it annually to stay in business.

Money lenders who wish to operate as traditional banks, microfinance banks or finance houses must obtain the requisite licenses from the Central Bank of Nigeria (CBN).

2.     Registration with the Federal Competition and Consumer Protection Commission (FCCPC): This requirement is only for digital money lenders. The Interim Regulatory/ Registration Framework And Guidelines For Digital Lending, 2022, mandates all digital lending platforms to be registered with the FCCPC.

The procedure for registration is as follows;

i.               Download and complete the Digital Lending Guidelines (DLG) Form 001, then submit it along with the following documents:

                                                                        a.     Applicant’s incorporation documents

                                                                        b.     A brief description of Applicant’s business

                                                                        c.     An organogram detailing key personnel, their roles, nationalities, and locations

                                                                        d.     The name and address of an authorized representative within the lending business who will handle all correspondence and legal matters on its behalf.

                                                                        e.     Details of funding sources, including equity or debt funding.

                                                                          f.     Evidence of membership in any trade or professional association

                                                                        g.     A list of digital lending apps currently in use or under development.

                                                                        h.     Details of affiliations with other companies, institutions, or similar businesses, whether local, regional, or global.

                                                                          i.     Any service level agreements with providers related to operations.

                                                                          j.     Evidence of a feedback and complaint resolution mechanism.

                                                                        k.     The terms of use for the applicant’s website.

                                                                          l.     The privacy policy of the applicant’s website

                                                                       m.     Evidence of data audit compliance and a data audit report submitted to the Nigerian Data Protection Bureau (NDPB).

                                                                        n.     Proof of tax payments or tax waivers, where applicable.

                                                                        o.     Money lending license.

ii.              Complete and submit the DLG form 002.

3.     Frequent regulatory monitoring and compliance:

Laws are being enacted frequently to regulate novel areas of the money lending business. Money lenders are required to monitor regulatory updates to stay compliant with relevant laws and avoid penalties for non-compliance. These laws include Anti-money laundering laws, data protection laws, and other laws regulating financial institutions in Nigeria.

4.     Membership of professional associations:

Money lenders are required to be associated with a Money Lending Professional body. Specifically, the FCCPC mandates digital money lending platforms to be members of Money lending professional bodies. Being a member of a professional body such as the Money Lender Association in Nigeria not only keeps your business compliant with extant regulations, but it helps to drive business growth.

5.     Owning and maintaining a physical place of business:

One of the pre-requisites for issuance of a money lender’s license is evidence of the existence of a physical place of business. Every money lender is required to have a definite and structured place of business for carrying out their activities. The licensing authority regularly carries out inspections before issuing or renewing licenses. Although the law does not provide a definite location, it is advisable to operate in commercial areas and one which is easily accessible for inspection.

6.      Renewal of licenses and registrations as at when due:

 It is important to note that the money lender’s license is not permanent. The license is valid for one (1) year once the authorities issue it, and you must renew it to continue operating legally as a money lender. Money lending companies must set up a structure to ensure they renew licenses and other certifications before expiration.

Consequences for non-compliance

As with other sectors, failure to comply with regulatory provisions can result in severe consequences for money lenders. These include:

a.     Revocation of License: The license issued to money lenders is subject to annual renewal. If a money lender fails to renew their license, the authorities may revoke it, prohibiting them from legally operating their business.

b.     Regulatory Fines and Imprisonment: Regulators can impose fines for non-compliance, as well as pursue imprisonment for senior executives found in violation of regulatory requirements.

c.     Reputational Damage: Non-compliance can lead to a loss of trust among customers, investors, and other stakeholders, resulting in decreased sales, declining stock prices, and a tarnished brand image.

Conclusion

Money lending has become a significant business activity in Nigeria, evolving into an indispensable sector that offers lucrative opportunities. This has led to a rise in the number of individuals establishing money-lending ventures. However, operating a money lending business without the requisite license is strictly prohibited in Nigeria, and failure to renew an existing license may result in an outright ban on operations by the regulatory bodies. By obtaining the necessary documentation, adhering to regulatory monitoring and compliance, maintaining a physical place of business, and ensuring regular renewal of licenses, money lenders can successfully operate in Nigeria.

While these requirements may seem challenging, La Peritum Law Practice is here to assist businesses in navigating the regulatory landscape, ensuring smooth and compliant operations.

For inquiries on how to register as a Money Lender in Nigeria, please email us at enquiries@laperitum.com or click here to contact us directly.

[1]Esege E. Eja, “Money Lending Law and Regulation of Consumer Credit in Nigeria” <money lending act Nigeria pdf - Search (bing.com) > accessed 3 October, 2024. 

[2]Ezejiofor, Okonkwo & Illegbune, Nigerian Business Law (London: Sweet & Maxwell, 1982) p.146

[3]  Section 2 Money Lenders Law of Lagos State.

[4]  In Lagos State, money lending licenses are typically granted to corporate entities rather than individuals, making it essential to register as a company rather than under a business name.