MONEY LENDING SERVICES IN NIGERIA

 

Introduction

Money lending in Nigeria has transitioned from traditional banking to a more flexible, technology-driven system. This evolution, which includes FinTechs and other digital companies, offers increased convenience, speed, and efficiency. As the money lending landscape has changed, the need to regulate these entities and their interactions with borrowers has become crucial.

This paper outlines key regulatory and compliance considerations for establishing and operating money lending businesses in Nigeria.

Who Can Offer Money Lending Services in Nigeria?

In Nigeria, money lending services can be offered by various entities, including:

1. Deposit Money Banks (DMBs)
2. Microfinance Banks (MFBs)
3. Finance companies
4. Cooperative societies
5. Financial technology companies operating with a money lender’s license

Regulatory Framework for Money Lending Services in Nigeria

1. Companies and Allied Matters Act (CAMA): The first major law regulating money lending companies in Nigeria is CAMA. The government agency responsible for the incorporation and administration of CAMA is the Corporate Affairs Commission (CAC). The law mandates anyone seeking to carry on any business activities in Nigeria to incorporate same promptly. Under Nigerian law, the foreign company is prohibited from carrying out any business activities in Nigeria without registration with the CAC.

 

2. Money Lenders Law of various states: This is the primary law that governs money lending activities within the various states. The law sets out the licensing requirements and regulations, maximum interest rates, and process of debt recovery, for money lenders operating within the state. In Nigeria, the money lenders law of the various state provides that any person who wishes to carry on the business of moneylending must obtain the moneylending license from the appropriate authority usually the State’s Ministry of Home Affairs, the moneylender wishes to operate.

 

3. Central Bank of Nigeria Act: The Central Bank of Nigeria (CBN) is the primary regulatory body for financial institutions in Nigeria. The CBN Act gives the Central Bank the authority to regulate money lending activities, set interest rates, and enforce compliance with regulations. The CBN fixes the maximum rates on interest for commercial banks, financial companies, and microfinance banks. The CBN also regulates the moneylenders in that, it issues Consumer Protection Regulations, the regulations stipulate the minimum standard on fair treatment of consumers, disclosure and transparency, and deployment of debt recovery processes, customer feedback, and protection of customers’ personal information. An example of such regulation is the CBN Consumer Protection Framework 2016.

 

4. Federal Competition and Consumer Protection Act (FCCPA): The FCCPA establishes the Federal Competition and Consumer Protection Commission (FCCPC), which is responsible for protecting the rights of consumers in relation to financial services. The Council has the authority to investigate complaints, enforce compliance with regulations, and impose sanctions on financial institutions or moneylenders that violate consumer rights. The FCCPC mandates all digital moneylenders to submit their source of funds. The Commission also directed all telecommunication companies and banks providing hosting services or other key services to digital moneylending without the approval of the Commission must cease the provision of such services. The Commission also directed all banks, platforms, technology providers, and payment systems to obtain evidence of regulatory approval before providing services to moneylenders.
5. Nigeria Data Protection Act: Moneylending companies are by the act mandated to file an audited report through a licensed data protection compliance organization (DPCO) before they can legally carry on their business. The DPCO must be certified in data science and cybersecurity.
6. Federal Inland Revenue Service (Establishment) Act: The law establishes the Federal Inland Revenue Service (FIRS), which is a primary government agency responsible for company income taxation and compliance in Nigeria. The money lending companies are liable to pay company income tax (CIT), which is 30% of their profits provided such a company has a turnover exceeding NGN100 Million per annum. The CIT is 20% if the company does not meet such a threshold.

Regulatory Concerns for Money Lending Businesses in Nigeria

There are several regulatory and compliance issues that must be navigated when operating a money lending business in Nigeria. Key considerations include:

1. Licensing

Any entity wishing to engage in money lending in Nigeria must obtain a Money Lending License. This license permits operations only in the state where it was issued and is regulated by the state’s money lending laws. The license expires annually on December 31st, regardless of the issuance date. Institutions such as DMBs, MFBs, merchant banks, and finance companies are exempt from this requirement as their existing licenses from the Central Bank of Nigeria (CBN) allow them to provide lending services.

1. Registration with the Federal Competition and Consumer Protection Commission (FCCPC)

The “Limited Interim Regulatory/Registration and Guidelines for Digital Lending 2022” framework mandates that entities intending to engage in digital lending must register with the FCCPC. Approval from the FCCPC is required before commencing operations. Non-compliance risks a ban on operating and removal of their apps from digital distribution platforms like Google Play Store and Apple Store. Entities exempt from the money lender’s license requirement must still obtain an exemption from the FCCPC as CBN-regulated entities.

1. Consumer Protection

The FCCPC enforces measures to prevent digital lenders from exploiting consumers or engaging in abusive practices, especially concerning balance calculations, loan default enforcement, and recovery processes. Digital lenders must implement policies protecting consumers’ rights and ensure transparency regarding interest rates, penalties, and charges. The CBN Consumer Protection Framework also sets minimum standards for addressing customer complaints and mandates transparency and effective complaint channels.

1. Data Protection

Digital lenders must comply with the Nigeria Data Protection Act, 2023 (NDPA), which governs the collection and processing of personal data. This includes informing borrowers about data collection and processing purposes, third-party data sharing, and obtaining borrower consent. The CBN Consumer Protection Framework also prohibits the disclosure of customer data by regulated financial institutions.

1. Anti-Money Laundering / Combating Financing of Terrorism (AML/CFT) Requirements

Digital lenders, particularly those regulated by the CBN, must establish frameworks to adhere to AML/CFT regulations. This includes implementing internal controls, developing AML/CFT policies, and conducting thorough customer due diligence. Lenders must verify customer identities and determine the necessary data for effective risk assessment and compliance.

Conclusion

The regulatory landscape for money lending in Nigeria is complex and constantly evolving. Entities must stay informed about regulatory and compliance requirements and continuously update their governance frameworks, policies, and systems to ensure compliance.

 

N.B The Contents of this Article do not constitute a legal opinion, should you require specific guidance on the subject, feel free to send an email to info@morgancolepartners.com