In the past few years, there has been an increase in the number of Fintech startups offering lending services to the public. One reason for this increase is as a result of the need for individuals and small businesses to access loans where traditional loan institutions required cumbersome collateral and attracted prohibitive interest rates.
In contrast, Fintech startups offer loans at affordable rates with little or no collateral. To offer such services, startups may register as Microfinance Banks or Money Lending companies-depending on the scope of their business operations. This article will focus on Money Lenders and the requirements and importance of registering as such.
A Money Lender's License is required for enterprises in the business of money lending. Money lending outfits are regulated by the money lending laws of the various states of Nigeria. By the Lagos State Money Lenders' Law, any person who lends money at an interest or who lends a sum of money in consideration of a larger sum being repaid will be regarded as a money lender until proven otherwise.
STAGES OF REGISTERING AS A MONEYLENDER
There are 3 stages to applying for a license.
- The first involves applying to the magistrate court in the jurisdiction where the business operates, for a letter stating that the applicant is fit and proper in terms of character and disposition. In applying for this, certain documents including a Police Clearance Certificate and the incorporation documents of the company must be submitted.
- Subsequently, the magistrate will issue a letter to the Ministry of Home Affairs (the "Ministry") confirming due compliance and recommending the issuance of the money lending license certificate. The applicant company will fill the requisite forms, attach the necessary documents and pay the required fees to the Ministry.
- The final stage will involve a visit to the business premises of the applicant by officials from the Ministry who will inspect the premises and the officers of the company. If the business has commenced operations, the visit will also involve an inspection of the company's books.
If the officials are satisfied that the company has complied with statutory requirements, the applicant shall be issued the Moneylender's License. The licence is to be renewed every year upon expiry at the sum of ₦25,000.00
EXAMPLES OF MONEYLENDERS IN THE FINTECH SPACE INCLUDE:
- Kwik Pay
- KiaKia
- RenMoney
- Paylater
IMPORTANCE OF REGISTERING AS A MONEYLENDER
Money lending comes with the risk of borrowers defaulting. Lenders have a recourse to the courts to compel defaulters to pay their debts. To receive protection under the law however, a money lender must have a valid license to ensure enforceability of loan agreements.
Footnotes
1 You can access our articles on previous guidelines issued by the CBN by clicking on this link https://pavestoneslegal.com/tag/central-bank-of-nigeria/
2 The CBN had previously indicated that BVNs would be utilized to assist in the recovery of loans. Please access our articles on this here https://pavestoneslegal.com/tag/bvn/
3 Please access our article on financial inclusion by the CBN here https://pavestoneslegal.com/tag/financial-inclusion-by-cbn
Originally published 11 August, 2020
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.