The evolution of the internet and the advancement in technology is manifest in all spheres of human endeavors. One area of such improvement is the financial services sector/industry, with the emergence of digital lenders who provide short-term loans/ credit facilities on a large scale. This is often done by leveraging the internet and the advancement in technology without the need for the rigorous credit facilitation usually associated with traditional banks.
Although mostly explored by organizations who are unable to meet up with the Central Bank of Nigeria's (CBN) licensing requirements, the increase in digital lending has also seen traditional banks extending their sphere of operation to cover digital lending in order to meet up with competition and stay abreast with technology in the course of their day-to-day business endeavors.
As lofty as the odds of exploring digital lending services or enjoying the benefits of the same may seem, there are usually challenges as to how to start a digital lending company in Nigeria, the licensing requirements, capital requirements, procedures for obtaining the license, etc.
In a question-and-answer format, this piece has answered some of the most salient questions that a person or organization desirous of setting up a digital lending company and obtaining the requisite license would seek clarification on.
WHO IS A DIGITAL MONEY LENDER?
A digital money lender is a person or organization that leverages the internet and technology to render short-term loans/credit facilities to customers. This is usually launched on such organization's mobile application where customers can access easy access mostly non-collateral backed loans.
WHO REGULATES DIGITAL MONEY LENDING IN NIGERIA?
Money lending falls under the sphere of financial services, which the CBN regulates. However, there is a need to differentiate between digital lenders duly licensed by the CBN and the ones operating under the States' Money Lenders Law. The former could be a microfinance bank, commercial bank, or finance house duly licensed by the CBN to carry out the business of digital lending. The latter, however, most times, is unable to meet up with CBN licensing requirements and therefore needs to operate leveraging on States Money Lenders' License.
WHAT IS REQUIRED TO SET UP A DIGITAL LENDING COMPANY IN NIGERIA?
- Incorporate a company with the required minimum share capital
- Obtain the CBN banking or finance house license
- Alternatively, obtain a state money lender's license.
WHAT ARE THE REQUIREMENTS FOR OBTAINING A MONEY LENDER'S LICENSE?
Money Lenders License is usually granted in Lagos State1, for instance, to corporate applicants and not to individuals. Thus, a company seeking to apply for a Money Lenders License in Lagos State must have the following:
- A minimum share capital of twenty million naira and a minimum of two (2) directors
- The object clause, as contained in its Memorandum of Association, must include the provision of money lending services.
WHAT ARE THE PROCEDURES FOR OBTAINING THE LICENSE?
To obtain a money lender's license in Lagos State, the applicant must:
- Make a formal application on the company's letterhead addressed to the Commissioner of Police;
- Attach all the company's incorporation documents to the application;
- Thereafter, the police will issue a clearance report to the directors of the applicant based on the application above;
- Submit an application in the prescribed form to the Chief Magistrate (accompanied by the incorporation documents of the company) within the Magisterial District where the business is situated;
- Upon successful application, the applicant is issued a Money Lenders Certificate (Form B) along with a letter addressed to the Permanent Secretary of the Ministry of Home Affairs, confirming due diligence and recommending the issuance of a Money Lenders License;
- Applicant makes a formal application to the Lagos State Ministry of Home Affairs attaching all the documents from 2-5 above and;
- Applicants must attach evidence of payment of tax for all directors (for the past 3 years);
- And if it's not a new company, the applicant must also attach a company's tax clearance certificate.
- A reference letter from the company's bankers;
- Proof of payment of the Money Lenders License fee in the sum of N200,000 (Two Hundred Thousand Naira);
- Proof of Application Form Fee of N25,000 (Twenty-Five Thousand Naira);
- The Lagos State Ministry of Home Affairs officials will physically inspect the applicant's place of business.
Subsequently, the applicant shall be issued a Money Lenders License upon satisfaction by the officials of the Ministry that all statutory requirements have been complied with. The license shall be valid for a period of one (1) year and subject to renewal every year.
IS THE PROCEDURE THE SAME ACROSS NIGERIA?
No, although similar, the licensing requirement differs by state. In Abuja, for example, the requirements for obtaining a money lender's license are as follows:
1. An application shall be made to the Chief Magistrate Court in a prescribed manner, and the applicant must provide the following documents:
a. An application letter for Money Lenders License addressed to the Chief Magistrate on a letterhead paper with the company's seal affixed to the letter;
b. All Corporate Affairs Commission's (CAC) incorporation documents of the company;
c. General Form Affidavit (stating that the company is not indebted and the account number provided is that of the company, the company account number);
d. Tax clearance of the Company;
e. Tax clearance of the Directors;
f. Police Character Clearance; and
g. Bank Clearance.
Upon Successful submission of these documents and payment of the prescribed fees, the application will be assigned to any Magistrate within the jurisdiction. If the application succeeds, the Money Lenders Certificate and License is issued to the applicant by the assigned Magistrate for one (1) year and shall be renewable at the license's expiration.
ARE THERE OTHER REQUIREMENTS TO BE MET?
Yes, one of such other requirements for setting up a digital lending company and obtaining the requisite license is by complying with the Federal Competition and Consumer Protection Agency's (FCCPA) Limited Interim Regulatory/Registration Framework and Guidelines for Digital Lending, 2022 ("Guidelines for Digital Lending 2022").2
WHAT ARE THE PROCEDURES FOR THE FCCPC'S REGULATORY FRAMEWORK?
Under the FCCPC's 2022 Guidelines, digital lenders are compelled to download and complete the INTERIM DIGITAL LENDING GUIDELINES FORM 0013 and attach the following documents:
- A certified copy of the certificate of incorporation of the applicant;
- A brief description of the business of the Applicant and, where relevant, their groups;
- Organogram showing role players and location of key role players and any operational approving authorities/person
- Name and address of a person within the business who is authorized to accept all correspondence and accept service on behalf of the business;
- Evidence of membership in any trade or professional associations;
- Any service level agreements with any service providers with respect to operations but excluding administration;
- Evidence of feedback and complaint resolution mechanism;
- Evidence of tax payments or tax waivers where applicable;
- All applicable fees associated with service; and
- A duly signed and executed FCCPC INTERIM DIGITAL LENDING GUIDELINES FORM 002 – Declaration for Digital Lending Businesses in Nigeria.
Digital lending is on the rise in Nigeria with the emergence of various mobile applications every day offering non-collateral backed loans to the public. However, while some of the lenders cannot meet the CBN's licensing requirements, it is submitted that obtaining the states' Money Lenders License and complying with the FCCPC's Interim Regulation, 2022, would go a long way in ensuring compliance.
1 Money Lending in Lagos State is governed by the Moneylenders' Law of Lagos State, Cap M7 2009, and the license is usually issued by the Lagos State Ministry of Home Affairs and Tourism
2 This was released in the exercise of the FCCPC's powers under sections 17, 18, and 163 of the Federal Competition and Consumer Protection Act (FCCPA), 2018.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.