In Nigeria, lending money and demanding interest on it is not as straightforward as simply offering loans. The law mandates that individuals or businesses engaging in money lending must be registered under the Money Lending Act or its equivalent laws in various states. Failure to obtain a valid money lending license can make loan agreements unenforceable in court, putting lenders at risk of financial loss.
This post explores the provisions of the Money Lending Act, the legal position on money lending in Nigeria, and a step-by-step guide on how to become a registered money lender.
The Legal Framework for Money Lending in Nigeria
The primary legislation governing money lending in Nigeria includes:
- The Money Lending Act (a federal law, though largely administered at the state level).
- State-specific Money Lenders Laws, such as those in Lagos, Abuja (FCT), Rivers, and other states.
- The Central Bank of Nigeria (CBN) Regulations for financial institutions engaging in lending activities.
The law defines a money lender as anyone (other than banks, cooperative societies, or certain licensed institutions) who engages in the business of lending money to individuals or businesses with the expectation of repayment with interest.
Key Legal Provisions:
- Mandatory Registration: Anyone who wants to engage in money lending must be registered and obtain a Money Lender’s License from the appropriate state authority.
- Validity of Loan Agreements: If a lender is unregistered, their loan agreement may be deemed unenforceable in court, meaning they may not be able to legally recover their money.
- Interest Rate Regulations: The law also regulates the amount of interest a lender can charge to prevent excessive rates.
- Penalties for Unlicensed Lending: Operating without a valid money lending license can result in fines, legal sanctions, and in some cases, imprisonment.
How to Become a Registered Money Lender in Nigeria
If you want to legally lend money and charge interest, you need to follow these steps:
Step 1: Business Registration
- Register a business entity (such as a Limited Liability Company) with the Corporate Affairs Commission (CAC).
- The business should have “Money Lending” as one of its objectives in its Memorandum of Association.
Step 2: Apply for a Money Lender’s License
- The application is submitted to the Magistrate Court or appropriate state licensing authority (depending on the state).
- Required documents typically include:
- Application letter stating intent
- Certificate of Incorporation (CAC)
- Memorandum and Articles of Association
- Tax Clearance Certificate
- Proof of a business office address
- A police clearance certificate for the business owners/directors
- Evidence of payment of the prescribed license fees
Step 3: Obtain Court Affidavit and Police Clearance
- You must obtain an affidavit from a Magistrate Court confirming your intent to operate as a money lender.
- The police will also conduct a background check and issue a clearance certificate confirming that you are not involved in criminal activities.
Step 4: Payment of Fees and Final Approval
- Pay the required government fees for licensing.
- Upon approval, you will be issued a Money Lender’s Certificate and License, which must be renewed annually.
Conclusion
Becoming a registered money lender in Nigeria is essential for anyone who wishes to legally engage in lending activities. Without proper licensing, loan agreements may not be legally enforceable, and lenders could face penalties. By following the registration process and complying with regulations, you can operate legally and protect your business interests.
If you are considering becoming a licensed money lender, ensure you consult a legal expert to guide you through the process.