Digital Money Lending: Regulatory Requirements and Compliance.

In recent years, Nigeria has witnessed an influx of digital money lending platforms, offering an alternative to the often cumbersome process of obtaining loans from traditional banks. Despite its contribution to the ease of doing business, heightened concerns have emerged over data security, as some platforms have become conduits for fraudulent and illegal activities. To mitigate the risks posed by these platforms, regulators have introduced requirements that digital lenders must adhere to in Nigeria. This article outlines the key regulatory compliance requirements that digital money lenders must comply with to operate legally and responsibly in Nigeria.

Who is a Digital Money Lender?

A digital money lender refers to an individual or entity that uses technology and online platforms to offer short-term loans or credit options to consumers. These services are commonly available through mobile and online platforms.

These entities have often provided a more streamlined, faster process than traditional lenders, with minimal paperwork and quick disbursements. The use of mobile apps also allows for greater accessibility, making financial services more available to underserved or unbanked populations.

Regulatory and Compliance Requirements for Digital Money Lenders:

1. Registration of the Business with the Corporate Affairs Commission (CAC):

Before carrying on any business in Nigeria, the business must be registered with the Corporate Affairs Commission. [1]  Any individual or organization intending to operate a digital money lending business must register with the CAC. The type of company to be registered by a digital money lender is a Limited Liability Company with a minimum share capital of twenty million Naira and a minimum of two (2) directors.

1. Obtaining a Money Lenders License:

To operate a digital money lending business legally, it is essential to obtain a Money Lenders License from the appropriate state authority. Where a company intends to operate as a bank or finance house, it must obtain the appropriate license from the Central Bank of Nigeria (CBN). The requisite licenses include the Microfinance Bank License or the Finance Company License, depending on the nature and scale of the financial services the company plans to offer. These licenses are essential for legally conducting banking or financial operations in Nigeria and ensuring compliance with regulatory standards set by the CBN. The process for acquiring a Money Lenders License varies depending on the state's specific regulations in which the business operates. Please read our article on Top Compliance Requirements for Money Lenders in Nigeria for more information on how to obtain a Money Lenders License.

1. Compliance with the Federal Competition and Consumer Protection Act, 2018, and Other Consumer Protection Laws:

Due to the severe abuse of money lending practices by operators who employ cruel, barbaric, and unethical debt collection methods, such as; cyberbullying, threats, defamation, physical harassment, and the distribution of embarrassing messages and photographs of the defaulting borrowers to contacts, the Federal Government, through the Federal Competition & Consumer Protection Commission (FCCPC) now directly supervises the activities of digital money lenders to protect consumer rights.

All Digital Money Lenders desirous of carrying on business in Nigeria must obtain the approval of the FCCPC and comply with the provisions of the FCCPA and Digital Money Lending Guidelines. Please read our article on Top Compliance Requirements for Money Lenders in Nigeria for more information on how to obtain FCCPC approval.

Consumer protection laws require Money Lenders to offer clear and detailed information regarding loan terms and conditions, including interest rates, repayment schedules, fees, and charges, ensuring transparency to enable borrowers to make informed decisions. Additionally, Digital Money Lenders are prohibited from engaging in unfair or deceptive practices, such as false advertising or harassment, and must ensure that loan agreements are equitable and not excessively burdensome.

1. Compliance with Data Protection Laws:

Digital Money Lenders must adhere to the relevant data protection laws and guidelines. The compliance requirements include maintaining adequate security measures to protect borrowers’ data and ensuring that personal data is not used in ways that the borrower has not explicitly consented to. Digital money lenders are also required to practice transparency by providing a privacy policy on their website that outlines how borrowers’ data are used, who has access to that data, and the rights borrowers have regarding their information. Additionally, they must conduct regular data audits and file an audited report through a licensed Data Protection Compliance Organization before they can legally carry on business. The Compliance Organization must be certified in data science and cyber security.[2]

5.     Compliance with Cyber Security Laws:

Under Nigeria’s cybersecurity law, Digital Money Lenders are required to comply with several key obligations aimed at safeguarding customer data and ensuring the integrity of electronic transactions. Among these obligations are; the identification of customers and verification of customers before executing electronic transactions, implementation of adequate cyber security protocols, frequent risk assessment, and reporting of cybersecurity breaches to the authorities for action.

1. Compliance with Anti-money Laundering Laws.

Digital Money Lenders, particularly those regulated by the CBN, must implement a governance framework that demonstrates their commitment to complying with Anti-Money Laundering (AML) and Counter Financing of Terrorism (CFT) regulations. As part of these requirements, money lenders must develop AML/CFT policies, create effective Know Your Customer (KYC) protocols and implement internal controls to prevent the misuse of their services for illegal activities. They are required to identify and verify their customers’ identities before granting any loans. [3]

1. Retain the services of a compliance expert.

The procedures and requirements for starting and maintaining a digital money lending business in Nigeria is quite intricate. Therefore, it is essential to engage a compliance expert to ensure that all obligations are fulfilled promptly and accurately.

Conclusion

Digital money lending is a heavily regulated sector due to its potential for facilitating fraudulent activities. As a result, the Nigerian government has implemented various measures to protect its citizens and others, with non-compliance resulting in severe consequences.

The information provided here serves as a valuable resource for anyone considering entering this business, but it is not exhaustive.

For more information on how to register and operate as a Digital Money Lender in Nigeria and other related matters, please contact us at enquiries@laperitum.com or click here.

[1] Section 863(1) & (2) of the Companies and Allied Matters Act, 2020.

[2]https://ovieobobolo.com/how-to-obtain-money-lenders-license-in-lagos-and-abuja/?utm_source=mondaq&utm_medium=syndication&utm_content=articleoriginal&utm_campaign=article

Accessed on 6th October 2024

[3]https://pavestoneslegal.com/key-regulatory-considerations-for-operating-a-money-lending-business-in-nigeria/

Accessed on 6th October, 2024