We can refer to the act of loaning money at an interest rate as a money-lending business. Although it is not as strictly regulated as traditional financial institutions like retail and commercial banks, mortgage companies, insurance companies, etc.
A money-lending business is considered a type of financial institution. It is, however, limited to issuing consumer loans and debts.
When you choose to get a money-lending business registered as a company, the share capital should not be less than N20 million. You will also need to fully understand and adhere to all laid down guidelines by the relevant government agencies.
I will focus the bulk of this tutorial on Lagos and Abuja, as they have the most advanced process of registration of the money-lending business.
In Lagos, you get an application form for ₦25,000 (Twenty-Five thousand Naira). Thereafter, you will pay the licence fee of ₦200,000.
In Abuja, they assess the fees payable based on the location of the money-lending business. It should, however, not be more than ₦200,000 (Two hundred thousand Naira) no matter the location, while the costs associated with obtaining a Police Clearance Report for directors and other miscellaneous expenses is also within N200,000 (Two hundred thousand Naira).
The certificate and licence are both granted by a state government agency allowed to do so within the State you do business.
In Abuja, the Chief Magistrate issues both the certificate and licence.
In Lagos, after applying to the Chief Magistrate for the Certificate. You would have to go a step further by applying to the Ministry of Home Affairs for the Licence.
Simply put, the licence gives you a right to debt recovery and enforcement of loan agreements.
It is also illegal to conduct a business dealing in money lending without a state-issued licence and certificate. The licence issued is valid for one year and renewable on its expiration.
This depends on the scale of operation you envisage. As stated above, get your licence and certificate in the States you intend to operate in. You will definitely have more reach with the use of a digital lending application.
We recommend you to register in all states if you will be using a digital lending application.
Besides standing the test of time, financial institutions involved in lending-related activities are among the most successful companies in the world. If you are interested in this business, please do it. Your investment will be put to good use. As bank interest rates rise, so will the rates charged by private money-lenders.
The high success rate is due to the constant need financial help.
Some states are liberal about the choice of corporate personality you give to your business. You can operate the business in your natural name in such states. In Lagos, however, you must register as a company with a minimum share capital of ₦20 million and at least two directors who must be adults.
Your CAC registration will require:
After incorporation, you can apply for the money-lender’s licence and certificate. For the certificate you will need;
The company registration takes between 7 to 14 days to be completed except for where you opt for the fast-track which takes 48 hours.
Tax Clearance Certificates, account opening, and police clearance also take about 14 days, all things being equal.
In Abuja, the Certificate and licence take 14 days. In Lagos, the certificate takes 7 days while the licence takes a long time because of the inspection of the applicant’s office.
Extensive research into any business venture aid in spotting both possibilities and dangers. It helps in identifying and avoiding blind pitfalls.
With this knowledge, you will make intelligent choices to address issues effectively. It also leads to a better understanding of the industry and customers, which makes it easier to deal with customers and stakeholders.
It gives you an insight into the challenges faced by those currently operating and how best to mitigate such challenges to your advantage.
You can increase the chances of your business surviving by consulting accomplished professionals with experience with businesses similar to yours.
This is crucial to providing you with objectivity and bringing you to terms with the stark realities of the money lending industry. You will need to consult at least two of the following professionals:
This comprises all the policies, processes, monitoring sales, and marketing campaigns, code of conduct, and other activities to ensure you keep up with standard practices.
It will ensure that your operations are run economically and efficiently. Check out this article on best practices for developing internal controls for your business.
We recommend that you register as a private limited company to grant your business a corporate personality different from yours. It is also a major requirement in Lagos to register as a company before they can licence you as a money-lending company.
You will also need to register with the Federal Inland Revenue Service as a taxpayer and get your Tax Identification Number.
So far, all we have discussed borders on legal compliance and they are all of utmost importance to ensure a smooth running business.
Besides these, the Federal Competition and Consumer Protection Commission (FCCPC) recently set up interim guidelines for digital money lenders.
The FCCPC requires you to do the following as a digital money lender:
The application process doesn't have to be a pain. Most delays are because of the unavailability of required documents. But, if you use the services of professionals, the process will be more flexible.
If you have questions about this or other compliance-related inquiries, book a free appointment with a Counseal expert. We're here to help!