Can I use a cooperative license to lend in Nigeria?

Because of the power of life and death that lenders have, loan businesses have always been regulated all over the world, which means a prospective lender must always be licensed. 

However, there are many types of licenses, issued by a multitude of regulators, that can be used for lending. In lending, there are just too many ways to skin a cat. One question that prospective Nigerian lenders always ask is if it’s legal to use a cooperative license to lend. 

Yes, it is, so let’s break it down.

First, what are cooperatives? 

A cooperative society, often shortened to cooperative, is a voluntary association where individuals or businesses join forces to achieve common economic, social, or cultural goals. Some cooperatives operate democratically, where each member has an equal say in decision-making, while others don’t. However, all cooperative groups have a single aim to foster members’ collective interests. These groups engage in diverse activities, such as the production, distribution, or consumption of goods and services. 

Types of cooperatives in Nigeria

Nigeria has many different types of cooperative groups, which fall into broad categories. However, the four major ones include: 

Agricultural cooperative (also known as farmers’ cooperative)

An agricultural cooperative group is an organization where farmers and producers unite voluntarily to carry out economic activities jointly for their mutual benefit. These cooperatives are established with the primary goal of enhancing the economic and social well-being of their members, typically farmers and those involved in agricultural production 

Saving and credit cooperative (also known as microfinance cooperative)

A Savings and Credit Cooperative (SACCO) is a member-owned financial group operating on cooperative and mutual ownership principles. SACCOs are established to promote thrift, provide credit, and offer their members a range of financial services. It is membership-based, fosters financial inclusion, promotes saving culture and provides affordable credit to its members.

Workers cooperative

A workers’ cooperative, also known simply as a worker co-op, is a cooperative group owned and democratically controlled by its employees or worker-members. They are trading enterprises owned and run by the people who work in them. They have an equal say in what the group does and an equitable share in the wealth created from the products and services they provide.

Multi-purpose cooperative (General cooperative)

A multi-purpose Cooperative, also known as a General Cooperative, is a versatile cooperative group that operates across diverse economic sectors. They engage in various activities such as agriculture, manufacturing, trading, services, and community development based on the needs of its members. Members collectively own and control the cooperative, with equal participation in decision-making.

Using cooperative license for lending in Nigeria

Can I use a cooperative license to lend? The short answer is yes, but as with many things, there’s a caveat to consider.

Cooperative licenses are permissions granted by states or the Federal Department of Cooperatives (now under the umbrella of the Federal Ministry of Labour), empowering individuals to organize and pool their resources under a specific scheme. These licenses serve as a regulatory framework, ensuring that cooperative activities adhere to established guidelines and contribute to each member’s interests and sustainable economic development.

This cooperative structure allows members to contribute money collectively, and loans are extended to members within the cooperative group from their pooled funds. Interestingly, the person overseeing the cooperative benefits by taking a share of the fees as profit for managing the group.

Here’s the thing about cooperative groups – it’s all about membership. Before you can give or take money from anyone, they need to be a member of that cooperative. If you obtain a cooperative license for lending, individuals who sign up on your loan platform essentially become members of your cooperative. 

However, this comes with the responsibility of consistently keeping them informed about any fees they may incur, whether in the form of loan processing fees, origination fees, late payment charges, etc. This setup allows you to not only lend money to your members but also accept deposits from them. It creates a symbiotic relationship where your loan business operates as a community, fostering financial collaboration and access to credit while maintaining transparency.

Any lender considering a cooperative license must thoroughly understand and adhere to the legal and ethical obligations associated with lending, ensuring transparency and fair practices throughout the borrowing process. If you have more questions or are wondering where to start your lending journey, start here or message us at [email protected].