We explained how to start a money lending business in Nigeria, business registration, license requirements for lending firm/ company and Procedures for Money Lenders License in Nigeria.
INTRODUCTION
The money lending business currently is, and would keep being, one of the services in high demand. This is because according to the current economic situation in Nigeria, the majority are poor. Therefore, they look to borrowing for survival. However, a major part of the high demand for money lending services is because of the presence of many SME around the country. A majority of these SMEs lack funding and you can make a business out of providing it.
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However, like all businesses, you first have to know how to start a money lending business in Nigeria, and also successfully complete the registration. In Nigeria, the business of money lending is carried out by both individuals and companies. If you’re looking to register a money lending business in Nigeria, you should note that commercial money lending activities in Nigeria require licensing by either the Central Bank of Nigeria (applicable to Banks and Other Financial Institutions) or the Ministry of Home Affairs of various states (applicable to money lenders that are non-financial institutions).
Commercial money lending activities are regulated by the Money Lending Laws of various States which makes it mandatory to carry out such form of business with a license. There are restrictions on interest rates that money lending operators can charge in their transactions. It is therefore important that you take note of what is obtainable in your location, should you choose to commence such business. In addition, corporate entities in the business of money lending should take note of the minimum share capital requirements by relevant regulatory agencies for setting up such companies.
WHAT IS LENDING?
It is the process of giving another person money with the agreement that it will be paid back, usually with interest. Can also be seen as a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that debt until it is repaid as well as to repay the principal amount borrowed.
HOW TO START A MONEY LENDING BUSINESS IN NIGERIA
If there’s one thing people always need, it’s money. It doesn’t matter how much we have. We always need more. As a result, people often find themselves in need of a loan. That’s when the money lending business comes in. Money lending businesses survive on the idea that the person loaning the money will pay an interest rate as a price for the loan.
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Lending money is often a risky thing to do, especially to new businesses. Thus, the interest rates can be substantial to cover the potential danger of losing an investment. The secret of a successful money lender lies within his ability to know which people deserve a loan and which can only cause trouble in the future.
Here’s a list of the things you need to keep in mind if you’re planning on starting a money lending company:
- Make sure that interest rates are appropriate to the risks involved in the loan.
- Start with a small market to be competitive.
- Have at least two or three sources that confirm the credibility of your client.
- Be sure to check the insurance provided by the customer.
- Have a clean, professional office space.
- Maintain a friendly environment to show your clients that they can trust you.
- Always document every detail of your loan.
- When the time is right – expand.
- Don’t create artificial geographical limits for your company.
The first thing you have to ensure when starting a money lending business is that your documentation is flawless. This goes both for the legal and accounting sides of your business. Hiring a lawyer is a great way to simplify this task, but it does require additional funds.
PROCEDURES FOR MONEY LENDERS LICENSE IN NIGERIA
Money lenders license are granted by a state government agency authorized to do so within the state where the money lending company seeks to operate. In Lagos state, the certificate is granted by the Magistrate Court while the license is granted by the Lagos State Ministry of Home Affairs.
However, in Abuja, the Magistrate Court grants both the certificate and the license. It is important to note that the Money Lenders License only permits operation in the state where the license is granted. Should you desire to operate or render money lending services in a different state, one will need to obtain a money lenders license in that state.
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If you want to register a money lending business, then you have to study the Money Lending Law in Nigeria. As you can see there, you need a separate license to offer money loans. The process of receiving such a permit involves three stages, each with a number of steps.
Stage 1 – Apply to the Magistrate Court with the following documents:
- Application letter
- Certified Copies of the CAC Form 2 and 7
- Memorandum and Articles of Association of the company
- Certificate of Incorporation
- Tax and Police Clearance
- Evidence of Maintenance of a current Bank
As a result, you will receive a letter from the Magistrate Court Registry and Form B of the Money Lenders ordinance.
Stage 2 – Apply to the Ministry of Home Affairs and Tourism which involves the following steps:
- Pay a fee of 10,000 Naira for the purchase of the Money Lender certificate
- Collect an invoice for a sum of 50,000 Naira from the Ministry.
- Submit the Application with the covering letter, Form B and Form C from the Magistrate Court, the Police report from Commissioner of Police, a 3-year Income Tax Clearance Certificate, the PAYE Certificate, the Certificate of Incorporation and the evidence of payment of application fees.
Stage 3 – Visitation: Later, an inspection from the Ministry will visit the registered office address to investigate your operation. Following the inspection, you will finally be given the Money Lending permit. Upon receiving your license, you will be recommended to acquire the following things that will help you at the beginning of your path:
- A money lending operational manual from a professional banking expert;
- All the necessary forms and accounting documentation essential to a money lending company;
- A basic electronic system to streamline the loan-giving process
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It’s also important to discuss the contract you’re offering to your clients with a lawyer so that the clients won’t be able to find any loopholes and leave you empty-handed.
CONCLUTION
Upon Successful submission of these documents and payment of the prescribed fees, the application will be assigned to any Magistrate within the jurisdiction. If the application succeeds, the Money Lenders Certificate and 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. It is important for any company who intends to render money lending services either digitally or other wise to obtain a Money Lenders License in all the states it intends to operate in. Failure to do this can deprive the company of the rights to seek redress where there’s default in loan repayment.