The debate over whether an unregistered money lender in Nigeria can recover loans with interest continues to generate legal discussions. While the Money Lending Act and state laws require money lenders to be registered before charging interest, some argue that a lender—registered or not—should still be able to recover their money (including profit) if the loan agreement is written and duly executed.
This argument is based on the legal principle of Pacta Sunt Servanda—a Latin maxim meaning “agreements must be kept.” It suggests that once parties willingly enter into a contract, they are bound by its terms. But does this principle override the statutory requirement for money lending licenses? Let’s examine the legal position in Nigeria.
The Money Lending Act vs. the Principle of Pacta Sunt Servanda
1. The Statutory Requirement for Money Lending Licenses
Under the Money Lending Act and various state Money Lenders Laws, any person engaging in money lending as a business must be registered and licensed. If they are not, their loan agreements—especially those charging interest—could be deemed unenforceable in court.
For example, in Okonkwo v. Cooperative Bank Ltd (2003), the court held that an unlicensed money lender could not enforce an interest-bearing loan because they lacked legal authority to engage in money lending.
2. The Argument for Enforcing Written Loan Agreements
Despite statutory restrictions, some legal practitioners argue that:
- A loan agreement is a contract, and under contract law, once a party signs an agreement, they are bound by its terms (Pacta Sunt Servanda).
- If a borrower willingly agrees to repay a loan with interest and signs a legally binding contract, they should not be allowed to later claim that the lender was unlicensed.
- Courts have sometimes allowed recovery where the loan was not primarily a money-lending business, but rather a private agreement between individuals.
For instance, in Yesufu v. A.C.B. Ltd (1981), the Supreme Court held that agreements freely entered into must be honored, reinforcing the principle of Pacta Sunt Servanda.
Balancing Contractual Freedom with Legal Restrictions
The law recognizes freedom of contract, but also regulates certain businesses to prevent abuse. If courts strictly apply the Money Lending Act, an unregistered lender may be unable to enforce an interest-bearing loan. However, if courts lean on Pacta Sunt Servanda, an agreement might still be upheld—particularly when:
- The lender is not in the business of money lending, but the loan was a one-time or occasional transaction.
- The loan agreement is properly drafted, signed, and notarized.
- The borrower does not challenge the contract on the grounds of illegality.
Conclusion: A Legal Gray Area
While Nigerian law mandates that money lenders be registered, the enforceability of loan agreements—even by unregistered lenders—remains a contentious issue. Courts may refuse to enforce an interest-bearing loan if the lender is unlicensed, but in some cases, they may uphold a well-drafted agreement under contract law principles.
For lenders, the safest approach is to obtain a Money Lender’s License to avoid legal uncertainties. For borrowers, signing a loan agreement means they may still be bound by its terms, even if the lender is unregistered.