Lending as a side hustle: What I need to know

So, you want to branch out and earn some extra cash on the side. Becoming a small-scale lender might not have been the first idea on your list. It might not have even been the tenth. Maybe you’re on this page out of curiosity. You might even have clicked on that link just so you can roll your eyes and shake your head with indignation while reading. You might even have landed on this page by mistake. Whatever your story is, the important thing is that you’re here, so we might as well get down to business.

Why should you become a lender?

Well, that is simple. It is the same reason why you endure third mainland bridge traffic every day and why Dangote wakes up every morning: to make money. Making lending your side-hustle is a great way to put your available funds to work. It has the potential to generate more interest on your nest-egg than you would if you put it in a bank account or if you invested it in any other bank product (for example, fixed deposits).

What does it take to become a lender?

That is pretty straight forward. You need:

• Available funds (of course!).
• A Money Lender’s License (for full-time lenders).
• A platform on which to run your Lending business.
• Good reporting and record-keeping capabilities.

Obtaining a lender’s license

Let’s talk a bit about that worrying issue of obtaining a license. If you’re like me, your blood pressure skyrockets anytime the issue of obtaining official documents from any government agency comes up! Just before your blood vessels start to pop, let’s dig into the Moneylenders Act a bit and try to unravel some of its mysteries.

Prior to 1990, money lending in Nigeria was regulated jointly by the Federal Government and the various State Governments through the Moneylenders Act of 1958, and the various Moneylenders Laws of the different states. Please don’t get cross-eyed with boredom just yet. I promise, this will be short and sweet, and we will get down to the business of making money soon.

The Moneylender Act was repealed (i.e. it was revoked, canceled, voided, nullified, you get the gist) in 1990, and now, money lending is regulated by the Moneylenders Laws of the various states. These Laws are generally similar from state to state and are variations of the original Moneylenders Act. One of the main clauses in the Act is the Moneylenders License (I’m sure all those eye-rolling skeptics are ready to pounce now. Just chillax for a little while longer).

The Moneylenders Law of Lagos state (as an example) states that “a person who lends money at interest or who lends a sum of money in consideration of a larger sum of money being repaid shall be presumed to be a money lender until the contrary is proved” (Moneylenders Law, 1990, sec.4). It goes on to stipulate that any such lender MUST be licensed in order to operate as a money lender legally.

What does that mean for you, the small-time side-hustling money lender? Let’s take a closer look at the Law. One of the stated exemptions to the definition of a lender includes “any person whose main business is not lending and who lends money solely incidental to the conduct of such business” (Moneylenders Law, 1990, sec.4). What this is saying in simple English is that if money lending is NOT your sole business/occupation/source of income, then you cannot be classified as a money lender and hence, do not require a license to legally run your side-hustle. Okay, everyone can heave a sigh of relief now, and all the skeptics can retire to fight another day.

Note, however, that despite not being required to obtain a license to lend money ON THE SIDE, you are still regulated by the Moneylenders Law of the state in which you operate. That means that you’re still not allowed to charge unfair interests or to have your borrower’s legs broken. Seriously. So, it would be in your best interest to familiarize yourself with the Laws in your state of residence.

Platform, record-keeping, and reporting

Now that we’ve taken care of that licensing headache (phew!), let’s move on to better things! In order to run a successful business, you need to have the right tools. Just like you wouldn’t go bungee jumping without a bungee rope, you shouldn’t embark on a money lending side-hustle without your money-lending-rope. Start off on the right foot with the following:

• You will need a loan management App to organize your business. This will help you with creating loan products, managing loan applications from borrowers, approving and modifying loans, verifying applicants, etc.
• You need to be able to keep track of your money (yes please!), who you’ve lent to, who still owes you and how much, etc.
• You need good bookkeeping to know how much profit you’re making and how the business is doing.

Just before you throw up your hands in defeat again, take a deep breath. This is meant to be a side-hustle. No one expects you to become an Excel Guru or get a degree in Accounting. Software and Apps are readily available to help you with all the things mentioned above. If you can find a software or App that ticks all the boxes, better for you. One such product is Lendsqr.

Lendsqr is a lending SaaS (software as a service) designed for individual and small-scale lenders. It is a simple loan management platform for individuals, microfinance banks and small cooperatives to easily manage loans without spending a fortune building their own digital platform or learning to use complex spreadsheets. Lendsqr has all the tools you need to be a successful lender.

That’s it, folks. You can be up and running in no time at all. If you’re one of the brave at heart, and you decide that you want to go all in and obtain a Moneylenders license, take a look at our post on that to get a step-by-step guide.

References

1. Money lending: 8 things you need to know. (2015)
2. The law and practice of money lending in Nigeria. (2017)
3. The Moneylenders Law, SLS 1990, c. M7, s. 4