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The Complete Guide to Money Lending Business in Nigeria

By Business Advisory Team
Updated November 7, 2022

Introduction

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.

What you will need to understand following this guide

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.

How much is the Nigerian money lending licence?

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).

Who issues the money lending licence in Nigeria?

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.

What is the importance of the money lending licence in Nigeria?

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.

Do I need a licence in every state of the Federation?

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.

Is the money lending business profitable in Nigeria?

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.

How can I register my money lending business in Nigeria?

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:

  • Two (2) proposed names for your company
  • Contact details of the company
    • The company’s address
    • Email address
    • Phone number
  • The directors, shareholders, and company secretary’s personal details;
    • Name
    • Address
    • Phone number
    • Valid means of ID
    • Email address
    • Signature
  • Share capital (minimum of ₦20 million)
  • Subscription to the Share Capital
  • Name of person with significant control in the company
  • Description of nature of business. You should strictly limit this to money lending services and activities that you will do in furtherance of the services.
  • The company’s Memorandum and Articles of Association (MEMART)
  • Some other peculiar documents may be required by the CAC. E.g. where a foreigner is part of the directors.

After incorporation, you can apply for the money-lender’s licence and certificate. For the certificate you will need;

  • An application letter, on your company’s letterhead with the company seal affixed addressed to the Chief Magistrate, for a money-lender’s licence.
    You should accompany the letter with the following;
    • CTC of CAC forms showing details of directors, shareholders, and secretary.
    • MEMART of the company
    • Certificate of incorporation
    • Tax Clearance Certificate (TCC) (in Lagos, the TCC has to be for 3 years for at least two directors of the company); or proof of registration as a taxpayer, if you are a newly registered company.
    • Police Clearance of the corporate body or the individual.
    • Evidence of a current account maintained under a licensed bank with a reference letter from your bank.
    • Evidence of payment of Company Income Tax for 3 years as an old company.
    • Valid means of identity and passport photographs of the applicant (individual directors, if it is a company)
    • Forms B and C from the magistrate court
  • A subsequent application letter on your company’s letterhead to the Permanent Secretary of the Ministry of Home Affairs. This only applies to Lagos.

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.

How can you set up a money-lending business in Nigeria?

Step 1: Do an extensive research

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.

Step 2: Consultation with professionals

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:

  • Accountants: They will advise you on financial and record management, payment of tax, managing financial obligations to employees, and starting, maintaining, and increasing your business.
  • Business bankers: They will advise and provide you with services related to banking services, investment strategies, and also tools and methods for making and receiving payments.
  • IT/Digital Consultant: They will help with technological needs.
    They are vital to meet up with today’s market trend of financial technology.
  • Lawyers: Lawyers will help you get your necessary licences, certifications and facilitate legal compliance with all appropriate regulatory authorities.
    They will also help in choosing your legal structure. Their services also include interpreting and drafting your legal documents and contracts.
  • Other consultants to consider include human resources, management, sales, marketing, etc.

Step 3: Set up an internal framework

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.

Step 4: Registration with relevant agencies

First, register your business with the Corporate Affairs Commission (CAC).

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.

Step 5: Legal compliance

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:

  • Apply to FCCPC for registration by obtaining and filling out the FCCPC Interim Digital Lending Guidelines Form 001. You will provide details such as:
    • The name and contact address of the business in Nigeria. This includes all your branches in Nigeria.
    • Contact details
      • Phone Number
      • Email Address
      • Website
    • Identity and nationality of promoters, directors, and initial key officials
    • Sources of funding
    • Affiliations with other companies or bodies, whether national or international.
    • Agents or consultants involved in the operations, management, and registration process of the business
    • Bankers to the business
    • The proposed interest rate and other fees with their method of calculation
    • All licenses awarded to the business 
    • A list of the digital application in operation or intended to be in operation
  • Support your application with the following documents:
    • Certified copy of the certificate of incorporation (CAC) of the applicant
    • Description of business of the applicant
    • An organisational chart showing the role players and the position held
    • Name and address of a person allowed to accept all correspondences on behalf of the business
    • Evidence of membership in any trade or professional associations
    • All service level agreements with any service providers regarding operations
    • Evidence of tax payments or tax waivers where applicable
    • All applicable fees associated with services rendered
    • FCCPC form 002- Declaration for Digital Lending Businesses in Nigeria.
      This form is an undertaking of compliance with all laid down guidelines.

Conclusion 

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! 

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