Money is necessary for the facilitation of everything in life. To meet the need and demand for money, the art of lending evolved with financial institutions, notably banks, providing large scale credit facilities mainly for investments and related matters. Such credit facilities or loans called for stringent security in the form of cumbersome collaterals. In addition, if the borrower is an individual, he must have a certain level of earning capacity as a primary guarantee of repayment. The result is that those who were low income earners and who did not have the requisite security, but who needed money for personal needs or for small scale investments were not covered.
The yawning gap that was created was readily filled by individuals who had extra cash. They gave out their money on high interest rates since they did not insist on any collateral. Those became known as “moneylenders” and their trade “moneylending”. Moneylending is not the only consumer credit facility available. Consumer goods can also be acquired from the manufacturers, owners, distributors or retailers and used, while payment for them is made is made in convenient instalments or deferred to a further date. This is regulated by consumer credit laws which are the set of laws that govern credit transactions involving consumers and users of credit facilities.
This article intends to focus on the process of obtaining a money lenders license in Nigeria. In doing this, the article will attempt to answer the following questions:
a) Who is a moneylender?
b) What are the requirements and procedure for obtaining a moneylenders license in Nigeria?
c) Are there any futher obligations/reporting requirements expected of a licensed money lender upon obtaining the said license?
WHO IS A MONEYLENDER?
In the case of Eboni Finance and Securities ltd v. Wole Ojo Technical Services ltd & 2 ors, the Court of Appeal held, inter alia that:
“The definition of a money lender encompasses every person whose business is that of money lending and any person who lends money on interest or who lends a sum of money in consideration of a larger sum being repaid”.
The Moneylenders Law of Lagos State provides thus:
“A moneylender includes every person whose business is that of money lending or who carries on or advertises or announces himself or holds himself out in any way as carrying on that business, whether or not he also possesses or owns property or money derived from sources other than the lending of money and whether or not he carries on the business as a principal or as an agent but shall not include:
a) any society registered under the Co-operative societies or law; or
b) any body corporate, incorporated or empowered by special law to lend money in accordance with such law; or
c) 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
d) any person or body corporate exempted from the provisions of this law by order of the Commissioner; or
e) any pawn broker licensed under the Pawn Brokers Law where the loan is made in accordance with the provision of the Pawn Brokers Law and does not exceed the sum of forty naira;
This definition presupposes that every and all persons can be a money lender so long as such a person indulges in money lending as a form of business or advertises or holds himself out as carrying on the business of money lending. This is not the case as only Companies licensed as money lenders by the relevant government authority are permitted to engage in this line of business. It is upon the basis of the license that a money lending institution can successfully institute an action in the case of a default to recover the principal loan as well as accrued interest. An unlicensed money lender cannot institute a court action as a money lender otherwise such an action will fail. Such a Company can only bring an action to recover the actual money borrowed and will not be entitled to the accrued interest payable on the loan.
REGULATION OF MONEY LENDING IN NIGERIA
Prior to 1990, money lending was regulated concurrently by the Federal Government of Nigeria and the various State Governments through the Money Lenders Act and the Money Lenders laws of the various states respectively. However, the Money Lenders Act has been repealed leaving the regulation of money lending to the Money Lenders Laws of the various States of Nigeria. Their provisions are basically the same, except for slight modifications and displacement of sections. This is a result of the fact that they all have a common origin which is the Moneylenders Act 1927 of England.
REQUIREMENTS AND PROCEDURE FOR OBTAINING A MONEY LENDERS LICENSE
As earlier stated, the provisions of the various States of Nigeria on Money Lending are basically the same and as such the requirements and procedure for obtaining a license are the same in most States.
For the purpose of this article, we will be enumerating the requirements and stating the procedure for obtaining a moneylenders license in Lagos State mainly because it differs substantially from what is obtainable in other States.
The documents required include the following:
a. Certified True Copy of CAC Form 2
b. Certified True Copy of CAC Form 7
c. Certified True Copy of CAC Form 1.1 (for a company registered in 2017 and afterwards)
d. Certified True Copy of the Memorandum and Articles of Association of the Company. (The memorandum must contain an object to the effect that the Company engages in the business of providing lending services to companies, individuals etc.)
e. Certified True Copy of the Certificate of Incorporation of the Company.
f. Tax Receipt of the 2 Individual directors of the Company for the past 3 years. (2017-2019)
g. Evidence of Maintenance of current account under a licensed Bank
h. Evidence of payment of company taxes for the past 3 years. (2017-2019)
i. Passport Photograph and proof of Identity
j. Evidence of application for TIN (this Is for a newly incorporated company)
k. Police Clearance of the 2 individual directors
l. Police Clearance of the Corporate body
It is pertinent to point out that F-L mentioned above are only applicable in Lagos State. In other States, A-E are all the necessary requirements for obtaining a license. However, Oyo State in addition to A-E have also included the requirements of presenting the Tax Receipts of 2 individual directors of the Company for the past 3 years.
The procedure for obtaining a Moneylenders license in Lagos State is stated thus:
a) An application is made to the Chief Magistrate Court to issue a certificate in Form B and Form C to the proposed lender as a pre-condition for obtaining the license.
b) Upon obtaining the above, an application will then be made to the Lagos State Ministry of Home Affairs and Tourism for the issuance of the license.
c) On making an application to the Ministry as mentioned above and payment of relevant fees, a file will then be opened and a date will be set for the inspection of the registered office address of the prospective lender.
d) Upon visitation, if the Company is already engaging in lending business, the books shall be inspected in addition to the office premises and officers of the company, however, if the company is yet to commence business, the office premises and officers of the company will suffice.
e) Upon completion of the inspection on the set date, a report will be generated by the ministry officials and the Money Lenders License Certificate will be issued. This should take a maximum of 8 weeks from the date of application to the date of approval. The license is valid from 1st January to 31st December of every year.
Just as with the requirements, the procedure in Lagos State goes further than what is obtainable in other States. In other States, the license is issued at the point of submission of all documents at the office of the Chief Magistrate Court. However, Oyo State has done away with the requirement of submitting an application to the Magistrate Court and the license is issued at the point of submission of all documents to the Oyo State Ministry of Trade, Commerce and Co-operatives.
The law imposes certain obligations on every money lender. There are two main obligations here: the first is to issue receipts and the second is to keep a book of records. Every money lender is expected to give a receipt for every payment made to him on account of a loan or any interest paid in respect of the loan, and such a receipt must be issued immediately the payment is made.
The moneylender must also keep records of his transactions with the borrower. This record must be by way of a book which must be securely bound together. The book must contain records of every loan made by him which record must include the the date on which the loan was made, the amount of the principal, the rate of interest payable and all sums received in respect of the loan or the interest, with the dates of payment. Any moneylender who fails to comply with any of these requirements will not be entitled to enforce any claim in respect to any transaction in relation to which the default has been made.
It is also expected that in order for a money lender to continue in this line of business, the license issued by the State must be renewed on a yearly basis. In other States except Lagos, the license is valid for 12 months from the month it was obtained. For example, a lending license obtained in Oyo State in the month of April 2020 will be valid till April 2021. However, in Lagos State, the license is valid from January to December every year regardless of when it was obtained. This means that a lending license obtained in the month of April 2020 will expire in 31st December, 2020.
Money Lending is an indispensable consumer credit device in Nigeria, and indeed, the world over as it has not only assumed the status of inevitability but also that of indispensability. This is due to the fact that unlike banking facilities, customers are allowed to take limited amount of money with no collateral except their accounts to enable them acquire some consumer goods or meet other personal needs.
The simplicity of money lending also makes it more attractive and borrowers will readily go for it irrespective of the exploitative tendencies of the lenders. This is also coupled with the fact that the money lending business in Nigeria is not as heavily regulated as the financial institutions (banking institutions) and the non-banking financial institutions such as finance companies, micro finance banks, discount houses, bureau de change etc. It is simply regulated by the Money Lending Law of the various States of Nigeria.
Money Lending has come to stay and as such Regulations should therefore, facilitate it rather than inhibit it. Needless to say, the Moneylenders law of various States of Nigeria which are basically still in the form of the Moneylenders Act of England 1927 from which they were adapted are overdue for a review.
Just like every other business venture, a certain amount of risk is also present in the business of money lending. However, with a proper combination of good industry knowledge, detailed feasibility study and other preliminary findings together with necessary risk management mechanisms, it could be a profitable business venture.
For more information please contact:
Blackwood & Stone LP
+234 903 3501 613