KEY NOTES ON HOW TO SET UP A MONEY LENDER COMPANY IN NIGERIA
Introduction
From our experience in advising and assisting clients with business registration and licensing in Nigeria, money lender business is fast becoming very popular and widely embraced as an alternative solution to the problem of financial inclusion in Nigeria, particularly in form of micro lending or Buy Now Pay Later (“BNPL”).
With the advent and adoption of technology in the provision of money lending services, entrepreneurs are setting up, expanding and succeeding in money lending business with little start up requirements and a wide spectrum of market relevance in what otherwise appears to be a heavily regulated fintech ecosystem.
Money lender business, including BNPL, is a very highly underrated venture, yet a key player in the country’s micro credit system and promotion of economic advancement of a State through the small and medium enterprises.
In this article, we have highlighted below the requirements and procedure for registration of a money lender company at the Corporate Affairs Commission (“CAC”) and obtaining the operational certificate and license in Lagos State and the Federal Capital Territory (FCT), Abuja.
We have also highlighted key points on the subject in a question and answer format, for easy navigation and understanding by readers.
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Who is a Money Lender?
As defined by Section 2 of The Lagos State Money Lenders Laws, a Money Lender includes:
Every person whose business is that of money lending or who carries on or advertises or announces himself or holds himself out in any way as carrying on that business whether or not that person also possesses or earns property or money derived from sources other than the lending of money and whether or not that person carries on the business as a principal or as an agent; but shall not include:
- Any society registered under a Cooperative Society Law;
- Any statutory corporation empowered by law to lend money;
- Banks or insurance companies or other licensed business which lends money in the course its operations; and
- Licensed pawnbroker.
Under the Nigerian law, it is an offence to engage in a money lending business without the required government licence and anyone found engaging in any activity of money lending, whether or not with the required licence, will be presumed to be a Money Lender and held liable under the law.
However, it is important to mention that in Lagos State, a money lender certificate and licence are usually granted to a corporate applicant who meets the requirements set by the Ministry of Home Affairs (as discussed below).
What is the scope of the Money Lending License?
The respective State laws on money lending are silent on the scope of the certificate and license.
In our view, a money lender can loan any amount of money subject to the share capital of the Company provided there is nothing in the nature of transaction that violates laws and guidelines of institutions regulated by the Central Bank of Nigeria (“CBN”) or the Securities and Exchange Commission (“SEC”).
What Agency of Government is responsible for the grant of a Money Lender’s Licence?
Money lender’s certificate and licence are granted by a State Government agency authorised to do so within the State where the money lender company is doing or seeking to do business or the FCT, Abuja.
In Abuja, for instance, any of the Magistrate Courts in Abuja can grant both the licence and certificate to a money lender.
In Lagos, the certificate is granted by a Magistrate Court whilst the licence is granted by the Ministry of Home Affairs. The procedure in Lagos is more cumbersome than in any other State.
Can a digital lending company obtain a money lender licence in one State and use same to operate digitally in other States?
With the advent of technology, it is possible for the registered address of a money lender to be in one State whilst the business is potentially servicing customers from or residents in different other States of the country through digital lending applications.
Please note that a money lender company requires the money lender certificate and licence of every State in which they seek to operate either physically or digitally.
Failure to obtain money lender certificate and licence from a particular State where loans are given to customers will deprive the company the right to seek recovery or enforce a loan agreement in the State.
Also, the promoters of such business may be exposed to criminal liability for doing such business without regulatory licence. It is an offence to engage in money lending business in a State without the certificate and licence issued by the Government of that State.
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What are the requirements for registration of a Money Lending company in Nigeria?
It must be noted that in some States, an individual person can apply to be licensed as a money lender in his or her natural name.
However, in Lagos State, an applicant must be registered as a company with the CAC as a private limited liability company with a share capital of not less than N20 Million and at least two (2) adult directors.
Apart from any special requirements (which should be noted from the information below), the general requirements for setting up a private limited liability company in Nigeria are as follows:
i. Two (2) proposed names for the company for CAC’s name screening and approval;
ii. A proposed registered address, email and phone number of the company in Nigeria;
iii. Names, resident address, email address, phone number, electronic signature(s) and means of identification (preferably data page of international passport) of the shareholders, directors and company secretary;
iv. The amount of share capital (please note that the minimum share capital of a money lender company must not be less than N20 million share capital);
v. The division of the company’s shares amongst the shareholders and the names of person with significant control over the company;
vi. The description of business which must be solely for money lending services. However, we have successfully registered and obtained money lender licence for tech companies as a money lending businesses with additional business objects relating to development of mobile applications, technology services and use of lending technologies and other digital solutions;
vii. A copy of the company’s Memorandum and Articles of Association (“MEMART”). The CAC has a generic MEMART for applicants to adopt when incorporating a new company but we insert relevant clauses to make it suitable for the money lending businesses.
ix. Any other documents (such as work permit or business permit, etc.) as may be required by the CAC;
What are the Applicable Costs for Incorporating a Money Lender Company?
The costs of incorporation of a company in Nigeria are usually dependent on the amount of share capital of the company. This is because the share capital of a company attracts a stamp duty (payable to the Federal Inland Revenue Service) in addition to the incorporation or filing fee chargeable by the CAC.
The total of incorporation costs of a Money Lender company (i.e. a N20 Million share capital company) in Nigeria is about N305,000 (Three Hundred and Five Thousand Naira). The foregoing sum entails the CAC Registration Cost and Stamp Duty chargeable by Federal Inland Revenue Service (“FIRS”).
The incorporation by CAC costs about N105,161.25 (i.e. this is calculated by paying N10,000 cost for the first 1 million of the 20 million share capital and, then, paying N5,000 cost for every subsequent N1million of the remaining 19 million share capital, which will then mean N5,000 multiplied by 19, plus the initial N10,000 which ultimately equals to N105,000).
Also, as already mentioned above, stamp duty of N153,050 is payable to the Federal Inland Revenue Service on the N20 million share capital (this sum is determined by multiplying 0.75% by 20,000,000).
Both payments above are payable using the Federal Government Remita payment platform which charges about N161 per payment.
Post-incorporation costs for obtaining the certified true copy of already registered company’s documents and other miscellaneous expenses should not exceed N50,000.
How long does it take to complete the incorporation and licensing of a Money Lending company?
Registration of a company with CAC can be completed not more than 48hours using a fast track procedure at the CAC.
The tax registration, bank account opening and police report should not exceed 14 days both in Lagos and Abuja.
The grant of the certificate and licence should be accomplished in another 14 days in Abuja.
However, in Lagos, whilst the certificate may be achieved in 7 days, the grant of licence by the Ministry of Home Affairs may be longer because of its usual practice of visiting the applicant’s office for inspection before licensing.
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What are the requirements for obtaining money lenders’ license (for a company) in Lagos state?
1 Two Application Letters in the prescribed form on the letter head paper of the company: one to the Magistrate’ Court and the other subsequently to the Permanent Secretary of the Ministry of Home Affairs;
2 Certified True Copies of the Certificate of Incorporation, the Memorandum and Articles of Association (“MEMART”) of the Company and other CAC Forms showing the share capital of the company, the shareholder(s), the director(s), company secretary and other particulars. Please note that the MEMART must contain an object to the effect that the Company engages in the business of providing lending services to companies, individuals, etc.;
3 Three (3) years Tax Clearance Certificate (Lagos requirement only) of at least 2 Individual directors of the Company (if they are more than two directors). Please note that Lagos requires that the company must have at least two (2) adult directors. However, one (1) director is sufficient in order to obtain a money lender certificate and licence in Abuja;
4 Evidence of maintenance of a current account with a licensed bank in Nigeria;
5 Evidence of payment of Company Income taxes for 3 years (for old company);
6 Passport Photographs of the individual applicant (or of director of a corporate applicant) and means of identity;
7 Evidence of application for TIN (this is applicable only when it is a newly incorporated company).
8 Reference letter from the applicant’s bank.
9 Forms B and C from the Magistrate’s Court.
10 Police Clearance
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What are the benefits of obtaining Money lending Certificate and Licence?
1. Right to institute an action in court to recover the principal loan and accrued interest from a defaulting borrower. It is an offence to lend money for purpose of attracting interests unless the lender has obtained a money lender’s certificate and licence.
2. Right to own moveable and immovable property in the company’s name.
3. Certificate and licence serve a huge added advantage and brand visibility.
4. It can attract serious investors and create an opportunity for business expansion if a money lending business is registered and licensed.
5. Protects the business and promoters from criminal liability for doing money lending business without regulatory licence.
What are the procedures for obtaining a Money Lender’s License in Lagos State?
1. The first step is to make a formal application on the Company’s Letter Head to the Commissioner of Police, Police Command, attaching the applicant company’s Certificate of Incorporation, MEMART and other CAC Forms showing the particulars of shareholders and directors of the company.
2. Upon the above application, the Police will obtain the Applicant’s (or director’s) thumbprints for the purpose of issuing a Clearance Report to the Applicant.
3. Thereafter, the applicant is required to make an application in a prescribed form to the Chief Magistrate located within the Magisterial District where the business is situated.
4. If the application is successful, a Money Lender Certificate (Form B) from the Chief Magistrate along with a Letter which would be addressed to the Permanent Secretary of the Ministry of Home Affairs, confirming due compliance, and recommending the issuance of the Money Lender Licence.
5. Thereafter, a further application for a Money Lender Licence shall be made to the Ministry of Home Affairs and Tourism of the Lagos State Government attaching all the relevant documents.
6. The next stage is physical inspection of the money lender’s place of business by the officials from the Ministry of Home Affairs who, on an agreed date, will physically visit and inspect the premises and the officers of the Applicant company (including books and records where the applicant has already commenced operations).
7. Upon satisfaction by the official of the Ministry that the applicant has complied with the statutory requirements, the applicant will be issued with a Money Lender License for a period of one (1) year and shall be renewable every year.
What are the requirements and procedures for obtaining a Money Lender’s License in the FCT, Abuja?
The requirements for obtaining the Money Lending License in Abuja are the same with those applicable to Lagos State except that it is easier and faster to for an applicant to get the certificate and licence in Abuja.
Also, the procedures for application are slightly different in both cities. Whilst in Lagos State, the certificate is granted by a Chief Magistrate’s Court and, thereafter, the licence is granted by the Ministry of Home Affairs; in Abuja, both the certificate and licence are granted, at once, by the Chief Magistrate Court.
In Abuja, in order to obtain a money lender licence and certificate, an application shall be made to the Chief Magistrate Court in a prescribed manner and the applicant must provide the following documents:
1 A cover letter (i.e. an application Letter for Moneylender license and certificate, addressed to the Chief Magistrate, on the company’s letterhead paper with the company seal affix to the letter) attaching the relevant documents mentioned in the requirements above (same as Lagos State).
2 Police Clearance for the directors of the Company.
3 Evidence of Maintenance of current account with a licensed Bank in Nigeria.
4 The Chief Registrar of the Court will then open a file for the applicant, assign it to any Magistrate within the jurisdiction to consider the applicant’s application for money lender’s licence.
5 If the application succeeds, the moneylender’s license is issued to the applicant by the assigned Magistrate for a period of one (1) year and shall be renewable at the expiration of the license.
What is the estimated cost of obtaining a Money Lending License in Lagos State and Abuja?
In Lagos State, the estimated cost is about N400,000. The foregoing costs include the sum of N25,000 for Application Fee, and a Registration Fee of N200,000.00 (Two Hundred Thousand Naira) payable into the State Government’s Account. The other costs are associated with filing expenses at the Magistrate’s Court, obtaining Police Clearance Report for directors and other miscellaneous expenses.
In Abuja, the Chief Registrar of the Magistrate’s Court assesses the application based on the location of the money lending business and determines the costs payable by the applicant. From our experience, the assessment of license fee is always in the range of N200,000 whilst the costs associated with obtaining Police Clearance Report for directors and other miscellaneous expenses should not also exceed N200,000.
Please note that the above sums do not include the professional fees for registration of the company and processing the money lender certificate and licence.
What are the likely factors that delay or frustrate the success of application for money lender company’s incorporation and licensing process?
In our experience, the following factors have been noted amongst other reasons for the delay or frustration of the incorporation and licensing of a money lender company:
Factors associated with Delay in the Incorporation Process
1. Choosing a prohibited name for the proposed company delay or stall the incorporation by the CAC.
2. Inclusion of vague and wide object clause. For smooth incorporation process, it is advisable that the object clause should be limited to money lending services and not too wide to suggest inclusion of businesses under the supervision and regulation (and therefore requiring the approval in principle) of the Central Bank of Nigeria (“CBN”) or the Securities and Exchange Commission (“SEC”).
3. Technical glitch with the CAC Pre-Incorporation Portal may also slow down the process of registering a company.
4. Insufficiency of documentation. Foreign directors may require immigration documents if they use Nigerian address. Also, foreign or local corporate shareholder(s) may require certificate of incorporation and necessary resolutions for the consideration of the approving department of CAC. Failure to supply the required documents may lead to the incorporation application being queried and delayed.
5. Failure to supply mandatory information and other necessary details. For example, the details of Persons with Significant Control (PSC) of the company, the correct details of the shareholders, directors and company secretary as well as their respective means of identity and electronic signatures must be supplied to the CAC Pre-Incorporation Portal to avoid query of the registration application.
Factors Associated with Delay in the Licensing Process
1. Failure to provide the required supporting documents;
2. Failure to meet the share capital and directorship requirements;
3. Delay associated with opening bank accounts especially due to failure to provide necessary requirements including two (2) corporate bank references; or delay or inability of bank account officer to verify the money lender’s business address in order to activate the money lender company’s bank account;
4. Delay associated with processing biometric information of and Police Reports on directors especially where the biometric forms are not filled appropriately or where one director or a non-director attempts to fill the biometric data form on behalf of the (other) director(s).
5. Delay associated with scheduling office inspection by the Ministry of Home Affairs (for Lagos State) before granting a money lender licence. Please note that in Abuja, office inspection is not a requirement.
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About KORIAT & CO.
We are a growing commercial law firm in Lagos and Abuja. The above article is not legal advice and does not automatically make our readers our clients unless they specifically instruct us to act or represent them in any way.
Please contact Koriat & Co. through admin@koriatlaw.com or 09067842241 if you require additional information about or assistance in making the application for a money lender’s licence.
