Introduction
Globally, one of the recognized economic development strategies of national and municipal governments is their respective commitment to financial inclusion. This is because financial inclusion is a veritable tool for poverty reduction, employment generation, wealth creation and improvement of welfare and standard of living.
In the next ten (10) years, money lending business backed with financial technology would be one of the drivers of financial inclusion for the unbanked and underbanked Nigerians. It is therefore important for tech entrepreneurs to channel their energy towards this most underrated aspect of micro credit industry before the respective State government authorities raise the bars for granting the relevant operational license.
Why should a Fintech Entrepreneur consider a Money Lender License instead of a Central Bank of Nigeria License?
There is no gainsaying that the Nigerian financial sector is heavily regulated by the Central Bank of Nigeria (“CBN”) and, notwithstanding the Federal Government’s promotion of ease of doing business and financial inclusiveness, the process of obtaining an operational license from the CBN, including for subsectors, is everything but easy.
The bureaucracy and lack of transparency in the licensing process of the CBN runs counter to the apex bank’s acclaimed commitment to financial inclusion which it purportedly demonstrated by the launching of the National Financial Inclusion Strategy in 2012. It is also debatable whether the Nation has achieved the set target of 70% of financial inclusion of the unbanked and underbanked Nigerians by the end of the year 2020.
It is in the light of the above that a Money Lender License offers an alternative opportunity to fintech entrepreneurs who seek to invest in and leverage technological innovations for the provision of credit services, such as credit cards, small business loans, equity loans, car loans, wedding loans, Agric loans, mortgages, etc. in Nigeria.
The procedure for obtaining a money lender license in Nigeria is relatively easier when compared to a CBN license of whatever category of financial institution. For instance, one can register a money lender company with the Corporate Affairs Commission (“CAC”) before applying for a money lender license. In fact, a money lender license can be obtained in an individual’s personal name. However, a CBN license cannot be obtained in an individual’s personal name and a proposed CBN licensee must first obtain an Approval-in-Principle from the CBN before the company can be registered with CAC.
Also, the requirements for a money lender’s operational license are achievable with minimal costs and the license is grantable by State authority not Federal Government agency, except where the license is sought in the Federal Capital Territory (“FCT”), which is under the Federal Government of Nigeria.
Another fundamental distinction is that the timeline for registering a money lender company and securing its operational license is less than a month unlike a CBN license which takes a minimum of six (6) months and sometimes beyond one (1) year.
Furthermore, it is almost certain that every application for a money lender license will be granted once the requirements are met; whereas there is no assurance that CBN will grant an applicant’s license in spite of meeting all the requirements stipulated in a CBN Guidelines.
Finally, there is no requirement of cash deposit of share capital before the grant of a money lender license. However, in order to obtain a CBN license, the shareholders must first pay the company’s share capital into a CBN dedicated bank account and the sum of money must remain with the CBN throughout the application period which may be up to one (1) year.
How to Register a Money Lender Company and Obtain the Operational License?
We have previously written about the requirements and procedures for obtaining a Money Lender License from the Lagos State authority or the FCT Authority.
Please note that a money lender’s license can be obtained in a natural person’s name or corporate name.
A corporate money lender applicant must be registered with the CAC with a minimum issued share capital of N20,000,000 and located within the State where the company is proposing to obtain the money lender’s license.
The total cost of registering a N20 Million issued share capital is less than N400,000 (this includes filing cost of N105,000 chargeable by CAC, stamp duty of N150,000 chargeable by the Federal Inland Revenue Service and post-incorporation filings and certified true copy requests which should not exceed N50,000).
At the license application stage, the costs are based on each State Authority’s assessment which, from our experience, ranges between N300,000 and N500,000. The requirements for the license are Application Letter, Police Clearance, Reference Letter from the Applicant’s bankers, Proof of Tax registration and Certificate of Incorporation as well other corporate documents.
For more information on the requirements and procedure for obtaining a money lender license, please click Key Notes on How to Set Up a Money Lender Company in Nigeria.
