What is the cost of starting a lending business in Nigeria?
The lending trade as of now is, and would keep being, one of the services in top demand in Nigeria and West Africa at large. This can be seen through the lenses of the current financial circumstances in Nigeria, the larger part of the population is poor. And as a result, they will borrow for survival.
Nevertheless, a large part of the high demand for money lending services is due to the presence of many small and medium-sized enterprises (SMEs) across the country.
Whether you are looking to enter the lending industry or looking to use it as a side hustle, you need to know more than the basics, what licenses you need and steps to be taken. This article opens up the door on what to know before getting started. Let's dive in.
How much exactly do you need to start your lending business?
Let's start with the non-negotiables. As at this hour of writing and publishing, registering your business with the Corporate Affairs Commission (CAC) involves you having a minimum share capital of N20 million, translating to stamp duty and incorporation fees around N305,000. This is just to hit the ground running, so, before you seek to start your journey into the lending industry, you must have more than enough as it is vital to not go into debt in the short and long run. You need to have enough capital to cover the running cost at the start.
Process of registration
Registering and listing a new company in Nigeria largely follows the same procedure as registering with the Corporate Affairs Commission. However, since we are in the digital age, a majority of the process can be done online. Firstly, you have to visit the Corporate Affairs Commission at https://www.cac.gov.ng/ and do provide the following:
*Company name reservation
*CAAC 1.1 Pre-registration form
*Payment of filing and stamp duty fees
*Uploading of requested documents, which include: CAC1.1, MEMART, Form of Identification for Directors and Secretary
*Stamp duty certificate
*Evidence of CAC payment
Finally, you would also need to submit the original of those documents to any official CAC office. Check the list here.
Now, for a money lending business registration, you have to complete the following processes:
Apply to the magistrate court, where you would be required to submit the following
*Certificate of incorporation
*Tax and police clearance
*Memorandum and articles of association of your company
*Evidence of maintenance of a current bank account
*Certified copies of the CAC form 2 and 7
If the application is successful, the magistrate court registry would then give you a letter and Form B of the money lending ordinance to proceed with your application.
Application to the Ministry of Home Affairs and Tourism through the following steps:
*Payment of N10,000 to purchase the money lender certificate
*Collect an invoice of N50,000 from the Ministry Finally, submit your application with the following documents: Form B and Form C from the Magistrate court
*Evidence of payment of application fees
*Certificate of incorporation
*A police report from the commissioner of police
*PAYE certificate A 3-year income tax clearance certificate
This step simply involves visitation and inspection of your business office by the ministry. Obtaining a money lending license adds another layer, with Lagos State charging N225,000 (including application and registration fees). Don't forget legal and compliance costs, potentially reaching N200,000. Therefore, on successful inspection, you would receive your Money Lending Permit. Also, for further preparations, you can obtain the following as it would help your business:
*A money lending operational manual
*Get together all the necessary forms and documentation essential in the money lending process
*A decent electronic system for a fast and responsive loan-giving process.
During your course of application, it is advisable to move hand in hand with legal counsel, so as to make sure all laws of the Federal Republic of Nigeria are upheld.
Beyond the Paper Trail
Now, for the secrets often whispered, not shouted. Technology is your silent partner, and its demands can be substantial. Building a robust loan management system, secure data storage, and a user-friendly interface can easily cost N500,000 to N1 million . Marketing, the lifeblood of attracting customers, requires careful planning and investment, with social media campaigns and targeted advertising potentially reaching N200,000 per month.
Remember, skilled personnel are crucial. Hiring a competent team, even for a small operation, could set you back N300,000 to N500,000 monthly in Nigeria.
The Federal Government through the Federal Competition and Consumer Protection Commission (FCCPC) now mandates all companies engaging in money lending business activities to register with FCCPC for a permit before the commencement of a business operation. The FCCPC registration, which commenced in the year 2021 was informed by the unlawful collection of data and abuse of privacy rights of loan defaulters by various money lending companies, which were sending defamatory messages concerning their customers to third parties and the public. Read more here.
RENEWAL OF MONEY LENDER LICENSE
To renew a money lender lending license in Lagos State, the requirements are as follows:
*Application for renewal
*Money lenders ordinance (Form C) from Chief Magistrate Court.
*Duly completed and endorsed (Form C) by the Chief Magistrate Court.
*The Previous license issued Updated tax clearance.
*Evidence of payment of renewal fee.
*Re-visitation and inspection.
Beyond the registration and licenses level, running a money-lending business requires huge capital, good management, legal counsel and pin point strategy. However, although this article does not discuss that, you can read about it here. As long as you have all the necessary documents, registering a money lending company in Nigeria is easy as it comes.