The document outlines the regulatory framework for lending in Nigeria from both the state and federal level. At the state level, money lending is regulated by various Money Lender Laws and Cooperative Society Laws. At the federal level, lending is regulated by the BOFIA, CBN Act, and guidelines for banks, finance companies, microfinance banks, and development finance institutions. The regulatory framework covers licensing requirements, permissible and prohibited activities, capital requirements, and penalties for non-compliance. The document also discusses trends in fintech lending and partnerships between traditional and non-traditional lenders.

1. REGULATORY
FRAMEWORK FOR
LENDING: STATE V.
FEDERAL
PERSPECTIVES
2019 LAGOS FINTECH WEEK

2. OUTLINE
Introduction
Regulatory Framework of Traditional Lending in Nigeria
Fintech Related Lending In Nigeria
Recommendations
Conclusion
Issues Arising from the Current Regulatory Regime on Lending

3. INTRODUCTION
Objectives of the presentation
(x) to evaluate the current regulatory regime for lending in Nigeria across various levels of
government
(y) identify lacunae and conflicts (if any) in these regulations;
(z) recommendations.

4. INTRODUCTION
Key Participants in the Lending Sector in Nigeria
Relevant stakeholders in the credit system in Nigeria include the;
• Regulators such as the CBN, NCC, the Judiciary, particularly, Magistrate Courts in different
states, Local Governments, State Ministries
• Traditional Financial Institutions;
• Other Financial Institutions including Finance Companies, Microfinance banks, Cooperative
Societies;
• DFIs;
• Licensed Money Lenders;
• Infrastructure Providers such as the MNOs;
• Fintechs, etc.

5. What are the channels for driving lending in Nigeria?
Lenders in Nigeria service both the formal and informal sectors; the informal sector consists of unregulated,
unsecured/uncollaterised, small, short term savings and loan activities largely targeted at middle or low income
earners, individuals living in the rural areas, households or SMEs and MSMEs. Some of the lending products and
participants in the informal sector include, Ajo, Esusu, Moneylenders, Cooperative and Friendly Societies, MFBs,
Pawnbrokers, etc.
The formal sector on the other hand, is mostly targeted at HNIs, mid-size and large corporates, categories of
people and corporate organisations have bigger appetite for credit (which is usually driven by capital intensive
expenditures, etc.), which impacts access to such facilities. Therefore, it is heavily regulated, cumbersome, more
expensive and mostly serviced by the banks and other financial institutions; predominantly commercial banks
which account for up to 69.5% of total private sector credit.
However, some of these channels come with attendant challenges such as; (x) cumbersome application process;
(y) prohibitive interests, etc.
INTRODUCTION

6. Lending and the key trends in the space
The existing bottlenecks associated with accessing credit facilities from the traditional institutions and the
seemingly discrimination against the consumers (i.e. individuals in the informal sector) have led to the
innovative use of fintech to provide unsecured quick loans to consumers (i.e. salary earners, middle income
earners, MSMEs, SMEs, etc.).
We have continued to see a surge in the establishment of platforms that are leveraging technology to provide
quick consumer loans seamlessly to middle and low income individuals and businesses without the need for
collateral and at reduced interest rates. There are currently over 13 operational digital credit platforms, which
allow consumers to access credit facilities from their mobile phones from any part of the country.
INTRODUCTION

7. Lending and the key trends in the space
Interestingly, the traditional financial institutions, particularly, the commercial banks are beginning to also deploy
technology solutions to provide consumer loan type products targeted at some of their customers (i.e. salary
earners and business owners). These products also come with interest rates that are way below the standard
lending rates set by the CBN.
It is also noteworthy that we are witnessing more collaboration between the lending platforms and the banks, in
relation to what we call a ‘Customer Exchange’ – i.e. customers of the P2P lending platforms continue to scale,
leveraging funds provided by the platforms, very quickly, we expect these platforms to spin these customers off
to the traditional banks for access to greater capital, whilst the banks will continue to feed the P2Ps those
customers that are too small to access bank credit. It is generally anticipated that this Customer Exchange will
continue to drive the continued growth of P2Ps.
More so, in order to provide more consumer loans, banks have had to partner with MNOs, this has also birthed
series of partnerships between the banks and the MNOs
INTRODUCTION

8. REGULATORY FRAMEWORK OF TRADITIONAL LENDING IN NIGERIA
Key Regulations and Institutions for lending in Nigeria -
Prior to 1990, money lending was regulated concurrently by the Federal Government of Nigeria and by the various
State Governments through the Money Lenders Act, Cap 124, LFN, 1958; enacted as Moneylenders Ordinance
1939. They are generally similar because all of them have a common origin: the Moneylenders Act 1927 of England.
Hire-purchase and credit sale transactions are regulated by the Hire-Purchase Act 1965.
However, the Moneylenders Act has been repealed leaving the regulation of money lending to the Moneylenders
Laws of the various states of Nigeria. Currently, there are two regulatory regimes for lending in Nigeria i.e. at both
the state and federal levels.
At the state level: Moneylender Laws of the various states, Cooperative Societies Laws of the various states, and
Pawn brokers laws.
At the federal levels: BOFIA and Prudential Guidelines for Banks; CBN regulations and guidelines for banks and
other financial institution such as the Revised Guidelines for Finance Companies in Nigeria and Microfinance Banks.
Why Can States Make Lending Laws?
The Exclusive legislative list in the 1999 Constitution of the Federal Republic of Nigeria (as amended) does not
provide for money lending, which is distinct from banking strictly speaking. On the other hand, the Consurrent
legislative list provides for state to make Laws for that State with respect to commercial development of the State,
which although broad, likely to cover consumer loans.

9. REGULATORY FRAMEWORK OF TRADITIONAL LENDING IN NIGERIA
Overview of the Money Lender Laws of some states e.g. Lagos, Cross River, FCT, etc.
Who is a Moneylender? This includes every person whose business is that of money lending or who carries on or who advertises or
announces himself or holds himself out in any way as carrying on that business, whether or not he also possesses or owns a property or money
derived from sources other than the lending of money and whether or not he carries on the businesses as a principal or as an agent
The following provisions subsist among the Money Lender laws of the various states -
Exemption of certain persons or body corporates from the definition of Money Lender: a society registered
under the Co-operative Societies Law; anybody corporate, incorporated or empowered by special enactment to lend
money; any person bona fide carrying on the business of banking or insurance or bona fide carrying on any business,
not having for its primary object the lending of money; or any pawnbroker licensed under the Pawnbrokers Law are
exempted from the provisions of the Money Lenders Law of Lagos (MLL).
Requirement of Licences: All moneylenders are required to take out an annual license in a form as the State
Commissioner may prescribe in his true name.
Penalties for Failure to Obtain Licence: A person who does not take out a moneylender’s license in his true/
authorised name or who carries on moneylending business without a valid moneylender’s licence is liable upon
conviction to a fine of two hundred naira or both and one thousand naira in addition in case of a body corporate.
Moneylender’s Certificate: A moneylender’s certificate showing the moneylender’s true name, authorized name,
address and details must be applied for by the magistrate of the district of moneylending. Without the certificate, the
license will not be issued.
Limitation of Time: No moneylender can institute proceedings for recovery of money kept by him after twelve months
from the date the cause of action accrued unless the debtor acknowledges the debt in writing and gives a written
undertaking to pay the amount.
Obligation to give receipts and keep record of transactions: Every moneylender is to give a receipt for every
payment made to him and shall keep a book to enter details of loans made by him.
Restrictions on moneylending advertisements: Moneylenders are not to knowingly send or deliver or cause to be
sent or delivered to any person except in response to his written request, any document advertising his details as a
Moneylender.

10. REGULATORY FRAMEWORK OF TRADITIONAL LENDING IN NIGERIA
Key provisions of the BOFIA and CBN Act:
regulates banking and other financial institutions generally, thus, an entity
that wishes to provide marketplace lending may do so by registering as a
bank or other financial institution pursuant to BOFIA.
Banks and Other Financial Institutions Act (BOFIA);
empowers the CBN to co-operate with other banks in Nigeria to promote
and maintain adequate and reasonable financial service for the public and
also further such policies not inconsistent with the Act as shall in the
opinion of the Bank be in the national interest. . In this regard, CBN has
published several guidelines regulating lending and credit system in
Nigeria.
Central Bank of Nigeria Act:

11. REGULATORY FRAMEWORK OF TRADITIONAL LENDING IN NIGERIA
Revised Guidelines for Finance Companies in Nigeria
The Revised Guidelines are issued by the CBN in exercise of the powers conferred on it by the Central Bank of Nigeria Act of 2007 (CBN Act) and the
Banks and Other Financial Institutions Act of 2004 (the BOFIA). The Revised Guidelines are to regulate the establishment, operations and other
activities of Finance Companies. Highlights of the Revised Guidelines include:
Definition of Finance Company Business: It is defined to mean the business of providing financial services to individual
consumers and to industrial, commercial, or agricultural enterprises.
Permissible Operations of a Finance Company: Permissible services include: provision of consumer and
business loans to individuals and Micro, Small and Medium Enterprises (MSMEs), Funds Management, Asset
Finance, Project Finance, Local and International Trade Finance, Debt Factoring, Debt Securitization, Debt
Administration, Financial Consultancy, Loan Syndication, among others.
Non- Permissible Activities: Deposit Taking, Non- financial services such as trading, construction,
project management, other financial services such as stock broking, issuing house business, registrars
services, etc.
Licensing Requirements: All companies seeking a license for a Finance Company business in Nigeria shall
apply in writing to the CBN governor. Upon fulfilling stipulated requirements, the CBN Governor may grant the
license to a Finance Company and the CBN may at any time revoke or vary any condition of a license or impose
additional conditions. There are also conditions precedent to the commencement of operations which must be
fulfilled.
Penalties: Penalties are stipulated for various offences ranging from operating without a valid license to engaging in activities
outside the approved business, non-submission of audited annual accounts to CBN, amongst others.

12. REGULATORY FRAMEWORK OF TRADITIONAL LENDING IN NIGERIA
Revised Regulatory and Supervisory Guidelines for Microfinance Banks (MFBs) in Nigeria
The Guidelines issued by the CBN recognize the distinctiveness of micro clients, ownership structure of the institutions, their credit methodology,
and the central position of savings/deposits in the intermediation process. It adopts measures to ensure the soundness and safety of the
institutions, and the protection of depositors, especially low-income clients. Highlights of the Guidelines are as follows:
Definition: A microfinance bank is defined to mean any company licensed by the CBN to carry on the business of providing financial
services such as savings and deposits, loans, domestic fund transfers, other financial and non-financial services to microfinance
clients.
Permissible Activities: They include: (a) Acceptance of various types of deposits including savings, time, target and demand from
individuals, groups and associations; except public sector deposits; (b) Provision of credit to its customers, including formal and
informal self-help groups, individuals and associations; (c) Promotion and monitoring of loan usage among its customers by
providing ancillary capacity building in areas such as record keeping and small business management; (d) Issuance of redeemable
debentures to interested parties to raise funds from members of the public with the prior approval of the CBN; (e) Collection of
money or proceeds of banking instruments on behalf of its customers including clearing of cheques through correspondent banks;
(f) Acting as agent for the provision of mobile banking and micro insurance services to its clients, among others.
Prohibited activities: They include: (a) Acceptance of public sector (government) deposits except for the permissible activities (b)
Foreign exchange transactions; (c) International commercial papers; (d) International corporate finance; (e) International electronic
funds transfer; (f) Clearing house activities; (g) Collection of third-party cheques and other instruments for the purpose of clearing
through correspondent banks. (h) Dealing in land for speculative purposes; (i) Dealing in real estate except for its use as office
accommodation, among other things.

13. REGULATORY FRAMEWORK OF TRADITIONAL LENDING IN NIGERIA
Revised Regulatory and Supervisory Guidelines for Microfinance Banks (MFBs) in Nigeria
Ownership Requirements: No individual, group of individuals, their proxies or corporate entities and/or their subsidiaries shall
own controlling interest in more than one MFB, except as approved by the CBN. Also, A bank holding company that intends to set
up any category of MFBs as subsidiaries shall be required to meet the prescribed capital and other requirements stipulated in the
Guidelines.
Licensing Requirements: The Guidelines divide MFBs into three: Unit MFBs, State MFBs and National MFBs. A Unit Microfinance
Bank is authorized to operate in one location. It shall be required to have a minimum paid-up capital of N20 million (twenty million
Naira) and is prohibited from having branches and/or cash centers. A State Microfinance Bank is authorized to operate in one State
or the Federal Capital Territory (FCT). It shall be required to have a minimum paid-up capital of N100 million (one hundred million
Naira) and is allowed to open branches within the same State or the FCT, subject to prior written approval of the CBN for each new
branch or cash center. A National Microfinance Bank is authorized to operate in more than one State including the FCT. It shall be
required to have a minimum paid-up capital of N2 billion (two billion Naira), and is allowed to open branches in all States of the
Federation and the FCT, subject to prior written approval of the CBN for each new branch or cash center.
Licensing Documentation Requirements: Promoters seeking a MFB Licence are to apply in writing to the CBN Governor, to
submit required documentation and to pay licensing fees in accordance with the type of MFB. Within three months of receipt and
processing of a duly completed application, the CBN issues an approval in principle. Upon fulfilment of additional conditions, a final
operating licence will be granted.
Participation of Existing Financial Institutions: Any financial institution under the purview of the Central Bank of Nigeria e.g. a
Deposit Money Bank (DMB) or a Non-Governmental Organization Microfinance Institutions (NGO – MFIs), that intends to transform
into a microfinance bank is to apply to the Bank and ensure that the licensing requirements for an MFB are met

14. REGULATORY FRAMEWORK OF TRADITIONAL LENDING IN NIGERIA
Regulatory and Supervisory Guidelines for Development Finance Institutions in Nigeria
The Guidelines are created to provide a level playing field for participants in the Development Financing subsector and to further direct private
capital to participating financial institutions (PFIs). This Guidelines will provide a framework for licensing, regulation and supervision of both
Wholesale DFI and Retail DFI.
Definition: A DFI is a specialised financial institution established with specific mandate to develop and
promote key sectors of the economy considered to be of strategic importance to the overall socio-economic
development objectives of the country. A WDFI is a development finance institution devoted principally to
providing wholesale funds to Participating Financial Institutions (PFIs) for on-lending to enterprises in
identified sectors. A RDFI is a development finance institution devoted principally to lending directly to
enterprises/organisations in identified sectors. A PFI is a financial institution licensed and/or regulated by
the Central Bank of Nigeria and is involved in lending directly to end user clients in identified sectors.
Permissible Activities: A DFI is permitted to engage in the following: (a) Provision of finance and credit
facilities to eligible borrowers (b) Refinancing of MSMEs and LEs loans. (c) Investment in government
securities. (d) Issuance guarantees in line with permissible activities. (e) Issuance bonds and notes to fund
its operations and (f) Provision of technical assistance to borrowers (PFIs and MSMEs) on credit and
business development related activities to increase pool of development expertise.
10%
10%

15. REGULATORY FRAMEWORK OF TRADITIONAL LENDING IN NIGERIA
Regulatory and Supervisory Guidelines for Development Finance Institutions in Nigeria
The Guidelines are created to provide a level playing field for participants in the Development Financing subsector and to further direct private
capital to participating financial institutions (PFIs). This Guidelines will provide a framework for licensing, regulation and supervision of both
Wholesale DFI and Retail DFI.
10%
10%
Non-Permissible Activities: A DFI cannot engage in the following: (a) Acceptance of demand, savings
and time deposits, or any type of deposits. (b) Taking proprietary positions in real estate other than for its
own business. (c) Management of pension funds/schemes. (d) Project management for clients. (e)
Providing fund/asset management services. (f) Establishment of subsidiaries. (g) Foreign exchange,
commodity and equity trading. h. Financing capital market operations. (i) Granting of retail loans beyond
allowable percentage as in the case of a WDFI; and (j) All other activities NOT expressly permitted by the
CBN.
Licensing: The procedure and requirements for grant of licence to promoter(s) of a new DFI are the same
as specified for banks under BOFIA and any other regulations issued by the CBN. Existing DFIs are
required to obtain licence from the CBN. Promoters seeking a license for a new DFI are to apply in writing
and submitted required documents to the CBN Governor for grant of an approval in principle. The
application will indicate what class of DFI the licence is sought for – whether RDFI or WDFI. The CBN
approval is granted within 90 days of receipt of an application. A final license will be granted upon
submission of required documents and payment of a non-refundable licensing fee – Five Hundred
Thousand Naira for RDFI and One Million Naira for WDFI.

16. ISSUES ARISING FROM THE CURRENT REGULATORY REGIME ON LENDING
Restrictions with the Regulatory Framework at the State Level
• Territorial Limitation: a moneylender licensee is restricted to operating within the state where the license was
granted
• There is also a limit to the amount of interest that can be charged by the money lender
Restrictions with the Regulatory Framework at the Federal Level
• Incorporated companies with requirement of high minimum capital requirement (100,000,000 required to
be deposited with the CBN before issuance of license);
• Lending is just one of the permissible activities for most CBN regulated entities;
• Utilization of license across the Federation without territorial limitations for those with the national MFB,
Finance Company and DFI license

17. ISSUES ARISING FROM THE CURRENT REGULATORY REGIME ON LENDING
With the current regulatory structure, a moneylender licensee is limited in its operations and reach, unlike a
finance e company, MFB or DFI licensee. Thus, a lender desirous of having access to borrowers from different
parts of the country must obtain a license which enables such.
For Fintechs, the scope of the operations of the company would also influence the type of license the company
would obtain. Therefore, in essence, there is no duality per se, as the different laws and regulatory regimes exist
to serve different sectors of the economy and give the licensees different powers and capabilities under the law.

18. FINTECH RELATED LENDING IN NIGERIA
Digital credit is a fast-growing phenomenon in many emerging markets, that is, credit
delivered fully via digital channels, such as mobile phones and the internet.
The ecosystem of Fintech related lending includes regulators such as CBN, technology
providers for creative and innovative combination of machine learning and Artificial
Intelligence solutions, and other financial institutions, depending on model of digital lending
adopted, such as Mobile Money Operators, Payment Money Banks etc.
Any specific regulations for fintech lending in Nigeria?
o where the service offered involves mobile phones the License- Framework for Value
Added Service (VAS) issued by NCC will apply. The use of airtime for the repayment
of loans to a mobile lender could constitute a premium rated service, the provision of
which requires the approval of NCC

19. RECOMMENDATIONS
CBN could explore the possibility of providing a new licensing regime for
Fintechs in the lending sector, or introduce a tiered regime with different
application requirements and powers.

20. CONCLUSION
Summary of the key points in the presentation
Q&As

21. THANK YOU