Congratulations on making the decision to contribute your quota in bridging Nigeria’s credit gap and scaling the hurdles to become a lender. Now that you have succeeded in your building efforts so far, you mustn’t forget the final hurdle. You need a moneylenders license to operate your lending business in Nigeria. This is a key part of your business compliance (and keeping you out of a prison cell).
Unlike banking or microfinance licenses, the moneylender license is issued by state governments.
While individual states have their own moneylenders law which guides the process of obtaining a license and you can obtain a license in any of the states in Nigeria. However, for this purpose of this article, we’ll make reference to the Money Lenders Law of Lagos State.
Who does the law regard as a moneylender?
The Moneylenders Law (Chapter 7) of Lagos state defines a moneylender as “every person whose business is that of moneylending or who carries on or advertises or announces himself or holds himself out in any way as carrying on that business..”.
Further broken down, “any person who lends money at interest or who lends a sum of money in consideration of a larger sum being repaid shall be presumed to be a moneylender until the contrary can be proved”.
Process of obtaining a moneylenders license
Obtaining a moneylenders license in Lagos state is a three-pronged process which requires you to pass through the Chief Magistrate in your jurisdiction, the Ministry of Affairs and Tourism and the final step of an inspection of your business premises by government officials.
Notice to the Chief Magistrate
The law prescribes that any person who wishes to apply for a moneylenders license must first notify the Chief Magistrate in their jurisdiction of their intention at least fourteen days before application. This must be done with a registered letter (company letterhead and seal) and sent via post or courier. The Magistrate would then issue a certificate attesting that the applicant is “a fit and proper person in terms of character and disposition”. Given that this is an assessment of an individual’s character, if you have partners in the business, each partner will have to get a magistrate’s certificate issued to them individually.
The required documents for this stage include:
- Certificate of incorporation
- Tax clearance certificate
- Police clearance certificate from the Commissioner of Police
- Memorandum and Articles of Association
- Certified true copy of your company’s CAC form 2 and CAC form 7
After you have been granted an approval from the Chief Magistrate, you will be issued a Form B (Moneylenders Ordinance) and a Form C (Moneylenders Regulations Form of Moneylenders License) which you will need to fill out for the next stage of the process.
Application to the Ministry of Affairs and Tourism
Following your approval from the Chief Magistrate (you can appeal to the High Court if your application was refused), you will then proceed to make a formal application to the Ministry of Home Affairs and Tourism. This will be done with the documents acquired from court and the applicable fee paid into the Lagos State Government account.
In addition to the documents presented to the court and those acquired from the court, you will also require the following:
- A cover letter (application letter) containing all proprietors’ true names and business details and address
- Evidence of payment of company taxes
- Evidence of payment of applicable fees
- Pay as You Earn (PAYE)/ Tax clearance certificate for at least two directors
- Evidence of maintenance of a personal current account with a licensed bank
This is the final stage obtaining a moneylender license.
Government officials from the ministry will visit your registered business address at a set date for a physical inspection. The whole point of this is to confirm that your stated address is actually where you conduct your business . The officials also want to have a look to see if you’re really doing the business you claim to be involved in (and not just using moneylending as a front for some illegal activities like fraud or money laundering). To this end, they might want to take a look at your financial records if you have already started operations. Be prepared for this (or are you hiding something?)
It’s important to note that once issued your moneylenders license, it must be renewed annually (it expires December 31st of the year it’s issued). Since the license is also issued by states, if you wish to expand physical operations in other states, you must apply for a license in each of these states. No law currently restricts online operations so you don’t need special permission for that, but you do need to obtain a license from every state you intend to hold out your company even if your services will be delivered digitally.
You can’t accept deposits with a moneylenders license. If you wish to do so, you must apply for a Microfinance Bank (MFB) license from the Central Bank of Nigeria (CBN). A CBN Finance Company license can also be used for lending so if you already have one, you don’t need to bother going through this process.
Please note that this article only aims to provide general information about the process and you can always refer to the Moneylenders Law of Lagos State and engage a professional to provide expert guidance on your specific circumstances.