From the comfort of his home in Abeokuta, Ogun State, Akin (not real name) applied for a small loan on a mobile phone and got approval as well as credit alert in less than five minutes.
He got the loan without the need for paperwork, collateral or even proof of employment.
Getting small loan facilities in Nigeria has taken a new turn with a couple of money lending platforms giving loans with up to 6 months tenure. And these platforms are making use of the Internet and technology to better serve people.
Suggested Read: Where to get collateral-free personal loans online in Nigeria
Without a doubt, these platforms are impacting people’s lives. Akin, like millions of other Nigerians, relies on them to resolve financial emergencies from time to time. But there’s a question around the sustainability of these companies, given the hurdles involved in securing and keeping their operating licences.
Current licencing procedures could frustrate business for current players in the sector which can translate to fewer players. Borrowers like Akin would be on the receiving end of the negative effects of this, as the fewer the lenders available, the less the competitiveness as well as the number of people that can access small loans.
To operate a money lending service in Nigeria, one needs to apply to a magistrate court for a licence and the appropriate state ministry for the certificate; in the case of Lagos State, the Ministry of Home Affairs and Tourism.
Required documents include application letter addressed to the judge, tax clearance certificate, sworn affidavit, certificate of company incorporation and a report from the state commissioner of police.
It came to my knowledge that all that is required to get a moneylender’s licence from the court in Nigeria, aside all the paperwork, is just ₦500 ($1.38).
In order to confirm this, I paid a visit to the Chief Magistrate Court in Yaba, Lagos State. According to the court official I spoke with, the court doesn’t offer such service. This led me to another popular magistrate court in Lagos Island (Igbosere), as I was later informed that not all magistrate courts give the licence.
The court official I met at the Igbosere Magistrate Court -- who wouldn’t give me his name -- took me to his office.
“The fee is ₦15,000 ($41.43),” he said in response to my question about the required amount to finalise the licensing process at the court before proceeding to the state ministry.
This is contrary to what I was told; that I only needed to pay ₦500 ($1.38) to get a license. After I challenged him, he admitted that there’s actually no official price and his body language indicated that he was open to negotiation. After a bit of negotiating, he reduced the fee to ₦10,000 ($27.62).
My experience at the court aligns with that of a co-founder of one of the leading online lending platforms, Jide (not real name) who affirms that the original fee is ₦500 but the court officials usually ask for more than that.
This is one of the numerous bottlenecks to money lenders, with a potential negative effect on the borrowers who might not have access to small loans anymore.
After getting the licence from the court, one would have to proceed to the Lagos State Ministry of Home Affairs and Tourism to get a moneylender's certificate which requires inspection of office of the applicant, among other things.
Worthy of note is that the licence is due for renewal on a yearly basis. In essence, if you get the licence by December 30th, it’s required that you get a renewal in the new year.
Sharing his experience, Jide said the yearly licence renewal entails the same process as though one is getting a new one.
Even worse, it usually takes up to 3 months to receive the licence from the court. However, one can have the licence in a shorter period of time by 'greasing some palms'.
Eventually, the troubles and procedures involved in getting and renewing the licence and certificate could reduce the number of the current players and even deter new entrants. This could translate to less competition -- and ultimately poorer service -- and fewer options for borrowers to obtain collateral-free loans.