The Nigeria’s consumer lending is currently valued at about N1.74 trillion, according to Euromonitor International, and it is expected to double by 2026. Naturally, Nigeria is a viable place to do business. As investors are expanding into the money lending business in Nigeria, they may face different regulatory and other market entry challenges.
At Koriat & Co., given our vast experience in business establishment and licensing, including processing money lending licence across Nigeria, we have taken account of some notable factors that hinder or delay regulatory approvals. Some of these factors are largely attributable to lack of understanding of the mandatory requirements for obtaining the operational licence and how to get those requirements in good time.
Previously, we have written on how to set up a money lending company, which is quite explicit and easy to comprehend to even non-lawyers. In this article, we have highlighted what in our experience are the reasons for delay or denial of application for money lending licence.
- Inexperience: In our previous article on how to set up a money lending company, we listed all the documents required to make the process seamless. The process of obtaining these required documents may be initiated before submission of licence application if the business promoters do not have them ready. Also, some commercial banks may refuse to open a bank account for the company because they ignorantly believe the company should present a business licence before opening a bank account whereas a bank account is a requirement for applying for a money lender licence, thus creating a catch-22 situation for the inexperienced. From our experience, it is better to open a bank account with commercial banks whose legal departments are well abreast of the licensing procedures for money lenders in Nigeria. At some other time, applicants may also have to deal with delays in obtaining police clearance report as well as delays from the Federal Inland Revenue Service who issues one of the requirements: proof of tax registration.
- Manual Process: For a sector that has evolved into a more advanced and technologically enabled system, it may be surprising to note that the entire process for obtaining a money lender licence in Nigeria is done manually. Also, all other requirements (such as the mandatory police report, bank reference letter request, etc.) are also processed manually.
- Queried Application: From experience, improper documentation and incomplete requirements are major reasons for delayed approval for money lender licence. Upon submission of an application, all documents are painstakingly scrutinized by the regulators. Where any required document or information is found to be missing, incomplete or not in order, the application may be queried and stalled until all the required documents are supplied to the regulator. Sometimes, the query may not be communicated promptly until the applicant takes proactive steps to follow up on the application.
- Delay in Pre-Licensing Inspection Visit: In Lagos State, for example, there is a requirement for visitation and inspection as part of the licensing procedure, which is a very critical. The inspection visit helps the regulator to determine whether the license should be granted. However, the scheduling of the inspection visit will depend on the manpower of the regulator and the number of pending applications requiring attention and readiness of the applicant’s office. There will naturally be some delay where the regulator is overwhelmed by a huge number of pending applications.
- Bureaucracy: The licensing procedure of some States is relatively more complex and bureaucratic than the others. For example, in Lagos State, the applicant is required to first process a money lender certificate from a Magistrate’s Court in Lagos before applying to the Ministry of Home Affairs and Tourism for money lender licence. So, the excessive paperwork and procedures which an applicant must go through before approval is another reason for a longer timeline for licensing. Also, the waiting period after physical inspection by the Ministry of Home Affairs (which is usually about three to six weeks) is another reason for delay.
- Inability to Provide convincing Answers to Regulators’ Questions: There are regulatory concerns about the real motive behind setting up a money lending business in Nigeria. The regulators have observed that upon obtaining a money lending licence, the licensees thereafter pursue other activities than that money lending activities. It is for this reason that the regulators ask probing questions in order to determine an applicant’s main motive and seriousness to pursue a money lending business. Some of these questions revolve around capital source, targeted market, operational procedures and expansion plan, amongst others. Inability to provide convincing answers to regulator’s questions could lead to further delay or outright refusal to grant money lender licence.
- Source of Funds: During pre-licence inspection, especially in Lagos, regulators may ask questions in compliance with the provisions of the Anti-Money Laundering (Prohibition and Prevention) Act, 2022. If there is any suspicion that the funds for the money lending business might have been proceeds of crime, it may affect the chances of getting the licence or delay the approval of the Ministry of Home Affairs until the applicant furnishes convincing proof showing that the funds for the business were not procured through any illegitimate means.
- Identity of owners of money lender company: Although a company can be set up in Nigeria by an individual or corporate shareholder. However, from our experience, it is better for an applicant company for a money lender licence to be owned by verifiable individual shareholders and not corporate shareholder(s). Where the applicant company is owned by corporate shareholders, the names and addresses of the Ultimate Beneficial Owners (“UBO”) or Persons of Significant Control (“PSC”) must be disclosed to the regulators promptly to avoid any delay or refusal to grant money lender licence.
- Operational Procedure: Inour update on Fintech Lending, we stated clearly the activities of the Federal Competition Consumer Protection Commission (“FCCPC”) to bring sanity to the activities of money lenders in relation to material disclosure and debt recovery. Overtime, the crude and brutish means with which money lenders proceed against their debtors to recover debt have been a major source of concern especially to the regulator and law enforcement agents. For this reason, the regulator ensures that an Applicant has a well-defined operational plan that complies with local laws and best practices. In the absence of the foregoing, the application for money lender licence could face further delays.
- Other Schedules of the Regulators: Regulators in charge of granting money lending licence in Nigeria have multiple responsibilities beyond licensing money lender companies. For example, in Lagos State, the Ministry of Home Affairs and Tourism is the responsible agency for religious organizations, supervision of Pilgrims Welfare Board, coordination and supervision of state celebrations, amongst others. These responsibilities sometimes compete with its additional role of licensing money lender. Quite naturally, the Ministry of Home Affairs and Tourism may not be very fast in its licensing responsibility during the Ramadan period as it may be in other seasons of the year.
Also, in the Federal Capital Territory, Abuja, for example, the licensing authority for money lender business is the Magistrate’s Court, which is primarily set up for dispute adjudication. Given the heavy dockets of our court system, it becomes difficult for most Magistrate’s Courts to license money lenders promptly.
About Koriat & Co.
Koriat & Co. has a team of very experienced lawyers in advising, registering and licensing money lender companies in Nigeria. You may read here more on how to set up a money lending company.
