It is a known secret that Nigeria’s informal sector is the largest in Africa accounting for 65 percent of the GDP. More often than not, this sector encapsulates transactions that are consummated by cash only. The volume of trades and the reach of the sector is estimated to be in billions of dollars.
by Anita Omonuwa
Unfortunately, the schemes of the government and the formal sector have not been adequate in catering to this sector particularly to women entrepreneurs. This creates a bounty of opportunities for informal lenders known to law as ‘money lenders’.
This piece provides a practical guide to obtaining a money lender’s licence and commencing an informal lending business. Despite criticisms of astronomical interest rates charged by money lenders and the ineffective regulation of these lenders, being a money lender presents microentrepreneurs, particularly women in unbanked and underbanked areas of the country with access to capital, creating for such women an opportunity to survive; commence economic activities; raise their status in their households by making visible capital contribution and generally improving the welfare of their families and communities.
Can You Become A Money Lender?
Yes, you can. Once you have made the decision to lend money to third parties in consideration of a larger sum being repaid, you are presumed to be a money lender until the contrary is proved. That said, such lending must be a business undertaking and not a one-off or incidental to business. As explained by Onnoghen JCA (as he was then known) in Ajao v. Ademola “a person engaged in other businesses who out of sympathy or pressure … lends money to his friend to resuscitate his ailing business should not by any stretch of imagination be termed Money Lender under the law …”
Get Your Licence
Now, you have decided to enable microentrepreneurship and grant credit to third parties (women included) eradicating the usual bottlenecks associated with accessing credit from the formal sector such as the provision of collateral, you must obtain a Licence. This should be obtained from the relevant regulatory authority in accordance with the money lender’s law of the state you intend to conduct your money lending business operations. For the purpose of illustration, the application process to obtain the Licence in Lagos State has been set out below:
1. Incorporate a company with the Corporate Affairs Commission. With the successful implementation of the ease of doing business initiatives, such incorporation can be effected online and completed within a few days.
2. Submit an application requesting the grant of the Licence to the Chief Magistrate (“CM”) within the jurisdiction of the Magistrate Court where the money lending business will be carried on, along with certified true copies (“CTCs”) of the entity’s incorporation and constitutional documents, copies of its tax documents, police clearance certificates for the directors, and evidence that a current account has been opened with a licensed bank. Upon satisfaction with the application, the CM will issue to you, a letter confirming that fact and the money lender’s certificate. It should be noted that a token application fee is required to be paid to the Office of the Magistrate in order to collect the certificate and other confirmatory documents.
3. Upon receipt of the certificate, submit an application to the Lagos State Ministry of Home Affairs along with copies of the entity’s tax documents, copies of the documents obtained from the Magistrate Court, evidence of payment of the license application fee, certificate issuance fee and the money lender’s fee, completed statutory forms, and CTCs of the entity’s incorporation and constitutional documents.
4. If the officials of the Ministry are satisfied with your application, a visit to the entity’s premises will be arranged on an agreed date in order to inspect its operational base.
5. In the absence of any adverse conclusion from the application or inspection, the Ministry would issue the licence in the name of the incorporated entity which signals a go-ahead to commence your money lending business operations.
It is no gainsaying that the informal economy provides the much-needed jobs for an explosive working-age population in the most populous country in Africa. Navigating the murky waters of informal lending (including but not limited to licensing, keeping default rates down, offering attractive financing options) could expand economic opportunities, and therefore, help elevate a lot of Nigerians from the chains of poverty. Interestingly, studies from the World Bank reveal that women play a critical role in the decline of poverty and granting credit to empower women could add about US$ 28 trillion in global GDP growth by 2025. In the article ‘Women: The Global Economic Engine, it was stated that women have over the decade, proven to be good credit risks and more likely than men to funnel earnings back into their families and communities. This forms the bedrock for breaking the cycle of poverty in any economy and it behoves lenders to realise that women make better borrowers and should therefore not be denied credit. It is no wonder Mr. Isaac Okorafor, the Director, Corporate Communications, CBN said at an event in November 2018 that, “It is easy to give more loans to women because they will pay back. They are not like those of us (men) who may not pay back”.
Anita Omonuwa, MCIArb is a triple First class holder from the University of Reading, UK (LLB), Nigerian Law School (BL) and the University of Birmingham, UK (LLM) with experience in telecommunications, corporate finance, project finance, cross-border financings, mergers and acquisitions, private equity, capital market as well as commercial arbitration. She currently works as an Advisor, Commercial Legal in the Corporate Services Division at MTN Nigeria Communications Plc (“MTN”). Prior to joining MTN, Anita worked in the Finance and Projects groups at Templars, where she advised banks, development financial institutions, corporates, project sponsors, equity and credit funds and other financiers on debt and equity capital raisings, financings and on a broad range of other legal and commercial issues.