File Name: banking laws and regulations in nigeria .zip
Consequently, alternative financing options, such as peer-to-peer lending and crowdfunding, have grown more popular amongst SMEs. The frantic search for capital to quickly inject into their businesses and constraints to traditional funding has brought digital lending, amongst other financing options, to the fore.
The flexibility, lower interest rates, ease, and speed of digital lending, compared with traditional financing, has increased its attractiveness amongst SMEs searching for capital. An individual or company that wishes to carry on the business of digital lending must obtain a Money Lending License in any of the 36 states of Nigeria and the Federal Capital Territory. A license obtained under the Money Lending Law of a state permits money lending activities only within that state.
The process involved in obtaining a license within each state is similar. It generally involves making an application in the prescribed form with the applicant's letter headed paper to the designated authority within the state. The application will be supported with requisite documents, such as the incorporation documents of the company, empowering it to carry on business as a money lender, tax clearance certificate, and evidence of payment of requisite application fees.
Upon the fulfillment of all regulatory requirements, an annually renewable license will be granted to the company. Alternatively, a company wishing to carry on money lending activities in Nigeria may be licensed by the Central Bank of Nigeria as a Finance Company under the Revised Guidelines for Finance Companies in Nigeria "the Guidelines".
The Guidelines permits finance companies to provide consumer loans; funds management; asset finance; project finance; local and international trade finance; debt factoring; debt securitization; financial consultancy; loan syndication, and issuing of vouchers, coupons, cards, and token stamps.
It is worthy of note that both money lenders and finance companies are prohibited from receiving deposits from the public unless they acquire a Microfinance Bank License. The nature of the digital lending business model is such that the regulatory framework for data protection cannot be ignored by a digital money lender offering its services to Nigerian residents.
This is more so as the digital lending platforms utilise borrowers' data to verify their identity, assess their credit worthiness or ability to repay the loan, and ensure loan repayment by asking their friends, family, or workplace to repay the loan or compel the borrower to repay.
Data collected include contact information, call logs, SMS logs, Facebook friends, contact list from other social media accounts, mobile money transaction history, geolocation, bank verification numbers, emails, passport photos, videos, and data from use of any third-party application. The Nigeria Data Protection Regulation, places an obligation on digital lenders as Data Controllers to disclose what data is being processed, the specific purpose of processing the data, and obtain consent of the Data Subjects to process the data.
Notably, before collecting personal data, the Data Controller must disclose the period for which the date will be stored, or if that is not possible, the criteria used to determine that period. There is currently no specific legislation on digital lending in Nigeria.
Thus, digital money lenders are forced to operate within the extant moneylending laws of the States, which are modelled after the UK's Money Lenders Act, While these laws contain general provisions on money lending, they are not in tune with developments in the lending market.
For instance, section 14 2 of the Lagos State Money Lenders Law, 10 renders a contract between a money lender and a borrower unenforceable if the money borrowed was not lent through a cheque drawn on the current account of the lender to the order of the borrower. With digital money lenders promising five-minute loans through an automatic transfer to the borrower's digital wallet or bank account, such archaic provisions pose an otiose limitation to digital lending.
Additionally, the cracks in the extant moneylending laws have provided an opportunity for some digital lenders to offer lending services without registering as a Money Lender. The moneylending laws of the States exclude co-operative societies registered under the Co-operative Societies Law from the purview of the law. Consequently, some digital lenders have set up as co-operative societies to receive contributions from their members and give loans to same.
Finally, the absence of a federal law on lending and the requirement for money lenders to be licensed under the laws of each state they intend to operate creates extra layers of regulatory requirements and increases the cost of lending. Therefore, it is not rare to see digital lenders opt for a Microfinance Bank license, which permits them to operate in all states of the country and offer a greater diversity of services. These concerns call for greater clarity on the regulation of digital lending in Nigeria.
Any amendment of the current laws should be carefully drafted to ensure a balance between regulating the market and killing the market. Digital lending has become a source of hope for many SMEs and should be encouraged. An attempt to create excessively stringent laws will not only stifle the market, but also limit funding to SMEs in an already difficult business environment. The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
All Rights Reserved. Password Passwords are Case Sensitive. Forgot your password? Free, unlimited access to more than half a million articles one-article limit removed from the diverse perspectives of 5, leading law, accountancy and advisory firms. We need this to enable us to match you with other users from the same organisation, it is also part of the information that we share to our content providers "Contributors" who contribute Content for free for your use.
Learn More Accept. Finance and Banking. Your LinkedIn Connections with the authors. To print this article, all you need is to be registered or login on Mondaq. Introduction It is widely acknowledged that there are limited funding sources for entrepreneurs in emerging economies, such as Nigeria. Regulatory Framework for Digital Lending in Nigeria An individual or company that wishes to carry on the business of digital lending must obtain a Money Lending License in any of the 36 states of Nigeria and the Federal Capital Territory.
Data Protection and Digital Lending in Nigeria The nature of the digital lending business model is such that the regulatory framework for data protection cannot be ignored by a digital money lender offering its services to Nigerian residents. Conclusion There is currently no specific legislation on digital lending in Nigeria. Olayanju Phillips. The Finance Bill has been signed into law. The new law introduces over 80 amendments to 14 different laws and takes effect from 1st January With the arrival of fintechs and other innovators on the banking scene, the way we bank and carry out financial transactions is constantly changing.
The Finance Act, the Act , which has a commencement date of 1st January The Banking sector worldwide is undergoing major changes and the key drivers of these change are You and I.
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Adeeko, Olukayode Adesope The law and policy of financial regulation and deregulation of Nigerian banking system. PhD thesis, University of Warwick. Request Changes to record. This thesis is a study of banking regulation in Nigeria. It has three main objectives: to explain the evolution and impact of banking regulation after independence to discuss the reasons for the persistent failure of financial regulation; and to highlight the role of external agencies in Nigeria's financial system. The thesis offers a historical perspective on the developments in Nigerian banking regulation, but focuses mainly on the period after independence.
This resource is periodically updated for necessary changes due to legal, market, or practice developments. Significant developments affecting this resource will be described below. What's on Practical Law? Show less Show more. Ask a question.
ICLG - Fintech Laws and Regulations - Nigeria covers a broad overview of common issues in fintech laws and regulations in 50 jurisdictions. Are there any notable fintech innovation trends of the past year within particular sub-sectors e. Mobile payments, payment processing, mobile lending and personal finance are the most prevalent fintech businesses in Nigeria. Payments : The payments and remittances subsector remains the most active and arguably the most developed area of the fintech sector in Nigeria.
Prior to the adoption of the Structural Adjustment Programme SAP in Nigeria, the government was the main player both in the practice and regulation of banking in the country. At the time, this arrangement was expedient given the government objective of preventing the domination of a very important sector of its economy by foreigners. The adoption of SAP, which has led to government divestment of its shares in most banks, has now extensively altered the relationship between banks and the government regulators. The aim of this paper is to help better understand the various forces that impact on the regulatory process for banks in Nigeria.
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