By  Amaka Ezeno, MCLArb,

In our relationships with others, occasions arise where we need to help by lending them money. In other situations, it could be a proper transaction which one engages in as their business. In any case, the law has a say as to what requirement must be met. Legally, money lending can be a complex issue which could lead to loss of money by an innocent lender. Money lending is regulated by the general law of contract and the Money Lenders Laws of various states.

The Money Lenders Law of Anambra State stipulates that, in order for an individual or organization to be a money lender under this law, the person or organization must first obtain the money lender’s licence of the Anambra State. It is an offence to engage in money lending business in any part of Anambra State without the licence of the State Government.

The Ministry of Trade, Commerce, and Industry of the Anambra State Government is responsible for granting money lenders licence. The Ministry grants a money lender company a money lender’s licence through its department of Small and Medium Enterprise (SME) to operate money lending activities within the state. The importance of obtaining money lender’s licence include:

  1. The right to institute an action in court to recover the principal loan and accrued interest from a defaulting borrower.
  2. Money lender certificate and licence serve as an added advantage to enhance brand visibility.
  3. The right to own movable and immovable property in the company’s name.
  4. Money lender licence can attract serious investors and create an opportunity for business expansion.
  5. It protects business and promoters from criminal liability for doing money lending business without regulatory licence.

In consequence, apart from the possibility of losing the principal sum borrowed with the accrued interest, criminal liability may descend upon a borrower who operates without the Money Lender’s Licence. In Nnamdi v. Ndulue & Ors (2017) LPELR-43593 (CA), a suit to recover a loan of N200,000 and N36,000 interest was filed for Ofuobi Committee of Friends. The court held that the association was a money lender and since it was not registered, the money was not recoverable.

The question to be answered, therefore, is whether a person automatically becomes a money lender by merely lending money to another. This is not the case, as there are three categories of persons who are not money lenders under the law even if they lend money. These persons are:

  1. A banker
  2. An insurer
  3. A person who does not have for his primary business, the lending of money.

In the case of Chidoka v. First City Finance Co Ltd (2013) All FWLR Pt 659 1024, the appellants took a loan from the respondent at an interest rate of 132% per annum. They defaulted in repaying the loan and the interest and sought to rely on the Money Lenders Law in urging the court to declare the transaction as illegal. The Supreme Court frowned at this reasoning holding that it would not assist the appellants, after collecting money from the respondents to do business, to now turn around to plead the Money Lenders Law to escape liability to repay the loan.

The court further noted that the Money Lender Law was intended to apply to only those who are really carrying on the business of money lending and not to a person who lends money as incidental to his business or to assist a friend in need.

In Max Blossom Ltd. v. Victor & Ors (2019) LPELR-47090(CA), the appellant loaned N10 million to the respondents to be repaid with N7.5 million interest. The respondent argued that the appellant was not a licenced money lender and therefore the loan was illegal and irrecoverable. The court did not accept this argument. In his concurrent judgement, Sanga, JCA said,

My learned brother dexterously and delicately dissected the convoluted reasoning by the respondents who after benefiting from a loan transaction turned round to castigate the said transaction by saying it was illegal ab intio. My learned brother in the lead judgement rightly observed on page 20 that “The respondents in this appeal are only trying to be clever by half…”

In other words, they want to use the instrumentality of the law to aid their nefarious activity which is akin to the proverbial saying of eating their cake and having it at the same time. This court cannot be a party to such an arrangement wherein the respondents derived benefit from the transaction, only to turn round on being called upon to pay to argue that the transaction did not meet the requirements of the Money Lenders Law of Rivers State.

In conclusion, merely lending money with interest does not make one a money lender that will require the Money Lender Licence. A man does not become a money lender under the law by reason of occasional loans to relations, friends or acquaintances. There must be a business of money lending, and the word ‘business’ implies the notion of a system repetition and continuity.