In Nigeria, money lending is regulated by a combination of federal and state laws, as well as case law. The regulatory framework aims at protecting borrowers from exploitation while ensuring that lenders operate within the boundaries of the law. This article gives an overview of the major legislation, regulators, and landmark case law applicable to money lending in Nigeria.

1. Legal Framework Regulating Money Lending

The Money Lenders Act (1958)

This Act is the main federal legislation that regulates money lending across Nigeria. It prescribes the general rules of money lenders’ business conduct and licensing.

 

• Requirement for a License: All money lenders must obtain a license from the relevant state authority before they can lawfully carry out business.
• Interest Rates: The Act prohibits high interest rates but does not prescribe a maximum. Courts play the pivotal role of determining what constitutes an “excessive” rate.
• Loan Agreements: Loan agreements should be in writing, signed by both parties, for them to be enforced. With the increase in online lending platforms, however, terms and conditions are usually accepted electronically, posing a problem for traditional legal interpretations.

State-Level Legislation

Aside from the Money Lenders Act, individual states have also passed certain laws to govern money lending at the state level. Some of these include:

• Lagos State Money Lenders Law (2009): Requires registration with the Ministry of Home Affairs and imposes penalties on unlicensed operation.
• Rivers State Money Lenders Law (2013): Prescribes licensing and sets standards for ethical lending practices.

Central Bank of Nigeria (CBN) Regulations

Being the highest financial regulator, the CBN oversees lending operations conducted by banks and financial institutions. Frameworks in use include:

• Microfinance Policy, Regulatory and Supervisory Framework (2005): Governs microfinance institutions undertaking small-scale lending.
• Consumer Protection Framework (under the Consumer Protection Council Act, Cap C25 LFN 2004): Safeguards borrowers against abusive lending.
• CBN Monetary Policy Circular No. 33 (2014): Restricts interest charges by financial institutions to a 30% limit per annum.

Other Applicable Laws

• Banks and Other Financial Institutions Act (BOFIA) 2020: Regulates lending activities performed by banks and licensed financial institutions.
• Principles of Contract Law: All lending contracts have to comply with the principles of contract law, namely mutual consent, capacity, and legal consideration.

2. Regulatory Oversight

1. Central Bank of Nigeria (CBN)

The CBN monitors adherence to lending law among licensed financial institutions in an attempt to instill prudent credit practices.

2. State Licensing Authorities

Each state governs and monitors money lenders within its territory. Examples include:

• Lagos State Ministry of Home Affairs and Tourism
• Rivers State Ministry of Commerce and Industry
• Magistrate Courts (in the majority of states, such courts issue money lending licenses).

3.  Federal Competition and Consumer Protection Commission (FCCPC)

FCCPC leads the regulation of online lenders and protects consumers from abusive lending practices. It also investigates and sanctions defaulting parties.

3. Judicial Principles and Precedents

a. Enforceability of Agreements of Loan

Loan agreements are governed by both the Money Lenders Act and the law of contract. In Balogun v. Labiran (1988), the court held the oral agreement of loan to be unenforceable since it did not meet statutory requirements.

b. Excessive Rates of Interest

Courts may declare or modify contracts with unconscionable interest. In Nigeria Merchant Bank v. Akinloye (1995), 48% per annum was deemed excessive and unfair.

c. Licensing as a Legal Requirement

Money lending in the absence of a valid license is illegal. In State v. Okoli (2004), the defendant was prosecuted successfully for lacking a license.

d. Consumer Protection Enforcement

The FCCPC has also prosecuted online lenders for unethical practices. In FCCPC v. Soko Lending (2022), the court ordered an online loan platform to be shut down for harassment and misuse of borrowers’ right to privacy.

4. Problems in the Money Lending Industry

• Unlicensed Lenders: Greater use of online loan apps has generated a boom of unregistered players, which endanger consumers.
• Unreasonably High Interest Rates: Despite court rulings, unreasonably high interest rates persist, especially among informal and online lenders.
• Lack of Public Awareness: Borrowers are mostly unaware of their rights and legal protection, making them vulnerable to exploitation.

Nigeria’s money lending legal and regulatory framework is designed to balance lender business and borrower protection. However, effective enforcement and consumer education remain large problems. Heightening oversight, particularly of online lenders, and utilization of judicial precedents can assist in creating a fairer and more transparent lending industry. Anybody or organization willing to engage in money lending must obtain a legitimate license from the concerned state agency, while online lenders must also obtain a license from the FCCPC.