After taking the chop to commercial motorcycles and tricycles and, by extension, bike-hailing startups operating in the state, and after extending the heat to Uber and Bolt, it seems lending companies are now on the radar.
On Sunday, March 15, it was reported that the Lagos State Government (LASG) is now reviewing the operations of money lenders in the state in an effort, which it says, is aimed at regulating the players, sanitizing the sector, and cutting out “scam-ish” posers.
The State Commissioner for Home Affairs, Prince Anofiu Elegushi, stated at a stakeholders forum that they are examining the laws guiding the activities of money lenders in the state.
According to him, the forum became necessary so as to deliberate on the proposed regulations and find a mutually beneficial ground, as some of the laws guiding the operations of money lenders have now become obsolete and in need of a total overhaul.
Additionally, the Director Home Affairs, Olubunmi Fatinikun, in her address, stated that all money lenders operating in the state must obtain a valid license from the ministry for a smooth and legal operation of their businesses while advising borrowers to only patronize licensed money lenders.
Now, one may wonder what the state has got to do with the workings of what could be thought of as a financial institution when the country’s apex bank, the Central Bank of Nigeria (CBN), is presumably saddled with that responsibility.
Well, that’s because, as per the country’s laws, money lending businesses (including digital micro-lending startups) are actually within the purview of State Governments, though this isn’t exactly common knowledge.
What Is And What Isn’t
To legally operate a money lending business in Nigeria full-time, the individual or corporate organisation needs to obtain a Moneylenders License. Money lending in Nigeria 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Laws are generally similar from state to state and are variations of the original Moneylenders Act of 1958 which was repealed in 1990 and replaced with the individual Moneylenders Laws of the different states.
As already mentioned, the Laws from state to state are very similar, so one could pretty much use the Moneylenders Law of any of the 36 States of the Federation, say Lagos State, as reference. (You can view a copy of the Law here.)
So, Who Needs A State-Issued Moneylenders License? Lending Startups Apparently
For starters, payday lenders who may have the CBN’s blessing and not the license of the State are pretty much running afoul of the law and can legally be clamped down on according to the wording of the law.
In defining a money lender, the Moneylenders Law of Lagos State excludes “any person whose main business is not lending and who lends money solely incidental to the conduct of such business.”
This means 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.
However, note 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 and must make sure that all your dealings are within the law.
According to the Moneylenders Law of Lagos state, the following categories of entities can apply for a Moneylenders License:
- An Applicant applying under his true names
- An Applicant applying under the name of a firm/company in which he is a partner, provided that the company is not required by the Companies and Allied Matters Act — Part B — Business Name to be registered.
- An Applicant applying under a business name for a business that is solely his, or in which he is a partner, provided that the business has been registered for three years or more as a money lending business under the Moneylenders Law and under the Companies and Allied Matters Act — Part B — Business Names.
That said, a typical fintech startup seeking to engage in the money lending business through mobile technology must also obtain a money lending license from each and every state the company intends to carry out its business. Yes, each and every one of them.
And the fact that there are many requirements and tedious steps involved in obtaining a Moneylenders license in Nigeria doesn’t help matters.
Also, it is pertinent to note that the Moneylenders License is separate from and in addition to the standard operating licenses and permits.
It goes without saying that digital lenders like PalmCredit, Branch, Fairmoney, OKash, Carbon, Renmoney and the likes, actually require a state-issued license for their lending operations and are in danger of getting the big stick if it so happens that they are found wanting in this regard.
In any case, it is advisable to seek expert legal counsel when undertaking the process of obtaining a Moneylenders License.
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