Introduction
Digital lending is on a steady rise in Nigeria and has potentially risen to N1.7 trillion as at December 2021 following the adverse effect of Covid-19 pandemic, the rising interest rates, inflation and unemployment rates. However, the regulatory framework for digital lending in Nigeria is still at a developing stage and lack of robust regulation has provided a fertile ground for malpractices amongst some of the existing digital lenders in the country.
Some online Moneylenders have continuously violated consumer privacy rights, some issue unfair lending terms to consumers and undertake unethical loan repayment/recovery practices, all of which have caused great concerns for not just the consumers but also the regulators.
At the forefront of the campaign against lending malpractices in Nigeria is the Federal Competition and Consumer Protection Commission (“FCCPC”), a federal agency created to protect consumers against unfair business practices in a bid to Nigeria.
We have previously reported the efforts of the FCCPC against unfair digital lenders. In our previous update on fintech lending law in Nigeria of January 2022, March 2022, and May 2022, we gave an up to date report on steps taken by the FCCPC through its Joint Committee (comprising federal regulators and law enforcement agencies) to curb the menace and unfair practices perpetuated by unregistered, unlicensed and unethical digital lenders in Nigeria.
Some of the actions taken so far include: aggressive supervisions, shutting down of illegal businesses, issuing interim regulations, obtaining court orders to freeze bank accounts of defaulters, engaging mobile applications companies (like Google’s Play Store and Apple Store) to shut down certain mobile applications of defaulters and directing commercial banks to freeze the bank accounts of fintech companies that are “infringing and abusive” in their operations.
In this Update, we examined the recent efforts by FCCPC to create balance and improve the business of money lending in Nigeria and made comments on the potential effects of the regulatory drives of the FCCPC. You may also read HERE about to set up a Digital Lending Company in Nigeria.
FCCP’s Regulatory Actions against Illegal Digital Lending Companies
- Government Blocks Mobile Payment, Telecom Network Access to Rogue Digital Lenders
Digital lending regulation has not been easy in Nigeria because of the dearth of regulatory framework and the fact that most of the operators do their businesses remotely which enables them to easily circumvent regulatory sanctions. However, the FCCPC has stepped up its game and devised a new medium to discourage the continued operations of illegal and blacklisted digital lenders. The new move of the FCCPC is by blocking the affected digital lenders’ access to mobile payment and telecommunication network infrastructure in the country.
The FCCP recently issued a directive to all Fintech payment companies in Nigeria including Flutterwave, Opay, Paystack and Monify to stop providing payment or transaction services to illegal or blacklisted digital lenders. Likewise, Mobile Network Operators (“MNOs”) were equally directed to stop providing server/hosting or other key services such as connectivity to the said unlicensed and blacklisted digital lenders.
With the above approach, it would be extremely difficult for non-compliant digital lenders to continue to operate in Nigeria.
- The Regulatory Enforcement guideline on Money lending in Nigeria
For a while now, the FCCPC has intimated the public of its efforts to issue a temporary regulatory framework for digital lending in Nigeria. Recently, in exercise of the powers conferred upon it by sections 17, 18 and 163 of the Federal Competition and Consumer Protection Act, 2018 (“the FCCP Act”), and all other powers enabling it in that behalf, the FCCPC issued the Limited Interim Regulatory/Registration Framework and Guidelines for Digital Lending, 2022 (“Guidelines for Digital Lending 2022”).
According to FCCPC, the Guidelines for Digital Lending 2022 was developed and adopted by the Joint Regulatory and Enforcement Task Force as a temporary step to establishing a clear regulatory framework for the lending space with the aim of ensuring mandatory registration of digital lenders with the FCCPC and provisions for registration requirements and additional regulatory approval of the FCCPC to carry out the business of digital lending in Nigeria.
The procedure for registration with the FCCPC is by filling and submitting two Registration Forms with some documentary requirements. The Registration Forms are:
i. Form DLG 001 (Explanatory Notes & Provisional Guidance to Interim Digital Lending Guidelines Form 001) which is required to be completed and submitted to the FCCPC by the applicant company. The Form DLG 001 requires the applicant company to disclose to FCCPC some information which includes the registered name of the digital money lender as well as other brand names for its digital presence; physical address; contact details; identity of promoters, directors and initial key role players; affiliated companies; source(s) of funding; proposed interest rate regime; service providers and service level agreements; list of all Apps in the business operations or intended for operation; etc.
ii. Form DLG 002 (Declaration for Digital Lending Business in Nigeria Form 002) which contains a declaration by the company to the effect that its business is legitimate, lawful and will operate in continuing compliance with any prevailing and applicable laws; that the company has complied with all applicable regulatory requirements and or approvals for any technology to be deployed; that the capital of the business is not of any illegal source; and have complied with all provisions of laws on non-involvement in illegal activity, privacy rights and data protection, and anti-money laundering regulations.
The list of documents that are required to accompany a digital lender’s application to the FCCPC are as follows:
i. Certified copy of the certificate of incorporation of the applicant company;
ii. A brief description of the business of the applicant company and where relevant, their groups;
iii. Organogram showing role players and location of key role players and any operational approving authorities/person;
iv. Name and address of a person within the business who is authorized to accept all correspondence and accept service on behalf of the business;
v. Evidence of membership in any trade or professional associations;
vi. Any service level agreements with any service providers with respect to operations but excluding administration;
vii. Evidence of feedback and complaint resolution mechanism;
viii. Evidence of tax payments or tax waivers where applicable;
ix. All applicable fees and charges associated with service;
x. FCCPC Interim Digital Lending Guidelines Form 002 (Declaration for Digital Lending Businesses in Nigeria)
Comments on the Guidelines for Digital Lending 2022
It is noteworthy that the Guidelines for Digital Lending 2022 has no commencement date and it is unclear if the operation of the Guidelines is to be effective immediately. Also, it is not clear what timeframe the existing digital lenders have to comply with the required registration with the FCCPC.
Although section 163(1)(c) of the FCCP Act empowers the FCCPC to make regulations on fees, administrative penalties, charges or levies and such other related matters, however, there is neither a clear provision in the Guidelines for mandatory registration with FCCPC nor a specified penal consequence for failure of any digital lender to register with the FCCPC. This may, in our view, lead to non-compliance by digital lenders.
Apart from its potential to spark off a jurisdictional dispute between FCCPC and the relevant State Government Agencies which are empowered, by State laws to licence and regulate money lenders in Nigeria, another issue with the Guidelines for Digital Lending 2022 is that it remains unclear as to whether the registration with the FCCPC is required before the digital lender could apply for operational lending licence of a State Government Agency and whether FCCPC approval is mandatory for lending business in Nigeria.
Undoubtedly, the Guidelines for Digital Lending 2022 has introduced additional requirements for setting up a digital lending company in Nigeria and increased the number regulatory approvals and reporting obligations for digital lenders. It is no gainsaying that the Guidelines would naturally increase the cost of doing digital lending business in the country.
READ ALSO:
HOW TO SET UP A DIGITAL LENDER IN GHANA
TEN (10) FAQs ON MONEY LENDING BUSINESS IN NIGERIA
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About Koriat & Co.
Koriat & Co. is a commercial law firm in with focus on advisory and support services for company incorporation and business licences in Nigeria, Ghana, Kenya and Rwanda.
We have successfully incorporated and licensed over ten (10) digital lending companies in Lagos and Abuja, Nigeria and are available to service our clients who are in seeking to do business in Ghana, Kenya and Rwanda.
