Senator Ihenyen, Lead Partner

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Background

Access to loans through traditional financial institutions in Nigeria is relatively uneasy and slow. This, amongst other factors, has made the use of digital money lending platforms or loan apps become quite in demand in the country in recent years. Today, a few things seem easier and quicker than having easy and quick access to loans at the click of a button. All a consumer needs is generally a mobile phone number and a mobile device or other device. Connect to the Internet, download the loan app, create an account, choose a preferred loan, and bing! Credit alert. But just as fast as the use of digital lending platforms or loan apps have grown in Nigeria, so have “loan sharks”.

“Loan sharks” are alternative lending platforms who involve in illegal and unethical practices by offensively offering loans to individuals through loan apps. These illegal and unethical practices include violating consumer privacy, ethical loan repayment/recovery practices, fair lending terms, and consumer rights. Shaming of loan defaulters has been found to be particularly flagrant and scandalous. All stakeholders, including consumers and regulators, had seen the handwriting on the wall: If loan sharks were not urgently curbed, Nigeria’s fast-growing digital money lending space may fast become a predatory marketplace.

To prevent more digital money lending consumers from loan sharks and also discourage other digital money lenders from becoming loan sharks too, relevant regulators had to urgently step in. On the one hand, the National Information Technology Development Agency (NITDA), which introduced the Nigerian Data Protection Regulation 2019 (NDPR), investigated and fined a number of defaulting digital money lenders or loan apps. Similarly, the Federal Competition and Consumer Protection Commission (FCCPC) also intervened. The FCCPC, in collaboration with other relevant agencies, cracked down on the operators of these aggressive and offensive digital money lending apps. The goal is to bring some sanity to the space. 

Considering that the digital money lending ecosystem comprises various players across the financial, telecom, and technology sectors, the FCCPC decided to constitute the inter-agency Joint Regulatory and Enforcement Task Force (the “Inter-agency Task Force”). In December 2022, the Inter-agency Task Force introduced the Limited Interim Regulatory/Registration Framework and Guidelines for Digital Money Lending 2022 (the “FCCPC Framework”). Clearly, the days of loan sharks in Nigeria are numbered. 

In this piece, I discuss the investigations of digital money lenders or loan apps and the regulatory measures taken by relevant regulators to curb loan sharks. For both existing and intending digital money lenders, requirements of the FCCPC  Framework and deadline for obtaining FCCPC’s approval are also discussed. In addition to other applicable regulatory requirements for digital money lenders in Nigeria, digital money lenders are strongly encouraged to comply—and timeously too—with the registration regime introduced by the FCCPC.

Investigation of digital money lenders and actions taken to curb loan sharks

The FCCPC primarily administers and enforces the provisions of the Federal Competition and Consumer Protection Act 2018 (the “FCCPA”). Among other things, the FCCPC develops and promotes fair, efficient, and competitive markets in the Nigerian economy; facilitates citizens’ access to safe products; and protects consumer rights in Nigeria. Consistent with its statutory mandate, the FCCPC recently intervened in what had become a largely predatory digital money lending market in the country. 

In November 2021, an Inter-Agency Task Force was set up to jointly investigate the violation of rights in Nigeria’s money-lending industry. The Central Bank of Nigeria (CBN), the Economic and Financial Crimes Commission (EFCC), FCCPC, Independent Corrupt Practices Commission (ICPC), National Human Rights Commission (NHRC), and NITDA constituted the Inter-agency Task force.  

As part of the Inter-Agency Task Force’s investigative and preemption actions, the following two steps were taken:

1. Freezing orders expanding and increasing the number of accounts and financial institutions involved.

2. Expanded and supplementary orders to Google Play Store and Apple’s App Store to take down additional loan apps. ChaCha, Here4U, Maxi Credit, and SoftPay were reportedly affected. For apps not on the Play Store, the FCCPC said it would trace their hosting platforms in order to disable them.

In August 2022, the FCCPC ordered multiple financial institutions to freeze or suspend operations of certain accounts associated with digital money lenders, subject to further investigations. The digital money lending apps affected, as published by the FCCPC in March 2022, were EasyCredit, Easy Moni, GoCash, Kashkash, Okash, and Speedy Choice. Consequently, Google announced that from January 2023 it would require digital money lending apps operating in Nigeria to provide their operating licence. Digital money lending operators who fail to do so will have their apps removed from the Google platform. 

Also, the FinTech and telecom operators were directed by the FCCPC to stop servicing loan sharks:

1. All operating payment systems, including Flutterwave, Monify, Opay, and Paystack, were ordered to immediately cease and desist from providing payment or transaction services to lenders under investigation or not otherwise operating with applicable regulatory approvals; and

2. All telecommunication/ technology companies, including Mobile Network Operators (MNOs), were ordered to cease and desist from providing server/hosting, or other key services such as connectivity to disclosed or known lenders who are targets/subjects of investigation or otherwise operating without regulatory approval.

Regulatory measures taken to addressing issues

To address issues, the FCCPC required defaulting digital money lenders to take correctional steps. By virtue of section 153 of the FCCPA and the provisions of the FCCPC’s Investigative Cooperation/Assistance Rules and Procedure 2021, digital money lenders who were found wanting based on investigations agreed to cooperate with the FCCPC as follows:

1. Cease and desist from contacting, including by text messages, people on contact lists/third parties of borrowers or defaulters;
2. Discontinue further abusive, coercive, and inappropriate language in communication with loan defaulters or borrowers;
3. Provide a mechanism for transparency regarding loan repayment fees, default or late payment charges, as well as interest calculation to the Commission.
4. The mechanism must include an open, accessible and responsive feedback and dispute resolution framework that complies with fair lending and loan recovery principles as well as acceptable regulatory standards for reconciliation of disputed balance calculations, and complaint resolution.

Notwithstanding, the FCCPC reserves the prerogative to treat the matter in any manner subject to prevailing law. According to the FCCPC, this includes but is not limited to “criminal prosecution of any digital money lender, its employees, collaborators or agents, whose conduct has been, or is in violation of extant law”.

To better address the menace of these unlicensed digital money lending apps or loan apps, the FCCPC eventually introduced a framework for registration in August 2022.

Introducing the Limited Interim Regulatory/Registration Framework and Guidelines for Digital Money Lending 2022 by the FCCPC

The FCCPC Framework was introduced by the FCCPC following the investigations and work of the Inter-Agency Task Force on the digital money lending apps. This is the result of the FCCPC’s “desire to promote fair, transparent and mutually beneficial alternative lending opportunities apart from traditional lending to consumers”.  The Framework was developed and mutually adopted by the Inter-agency Task Force. It is expected to be “the first and interim step to establishing a clear regulatory framework”. It took immediate effect from 18 August 2022.

The FCCPC Framework was primarily made in exercise of the powers conferred upon the FCCPC by sections 17, 18, and 163 of the FCCPA. Effectively, three major implications of the FCCPC Framework are:

1. FCCPC’s approval is now required to operate a digital money lending business in the country;
2. A limited moratorium period is provided for existing digital money lending businesses to comply in order to keep operating in the country; and
3. Without evidence of FCCPC’s approval, the FCCPC Framework prohibits various service providers, including banks, access/download platforms or stores, technology providers, and payment systems, from providing services to any digital money lender in the country.

This is to ensure that digital money lending platforms in Nigeria adopt best practices that help safeguard consumer rights. 

Notably, the FCCPC Framework has been described as an interim regulatory framework and guideline. There may be two reasons for this. First, by law, the authority for licensing money lenders, including digital money lenders in Nigeria, is within the purview of the relevant state government. (It explains why the CBN does not have a regulatory framework for digital money lenders in Nigeria.) Second, the FCCPC with other relevant regulators and concerned stakeholders, may be considering developing a more comprehensive regulatory framework and licensing regime for digital money lenders in Nigeria in the (near) future. 

Requirements for FCCPC’s approval for digital money lending businesses

Applicants are required to do as follows:

Complete and submit FCCPC Interim digital money lending Guidelines Form 001 (Form DLG 001).

The digital money lender is required to submit information about the operators of the business. Such information include:

1. Identity and nationality of promoters, directors and initial key role players;
2. Source(s) of funding including equity, debt, or otherwise;
3. Affiliations with any other companies, institutions, or similar businesses, whether domestic, regional, or global;
4. Consultants, agents, or any person assisting with registration process, operations, or management;
5. Bankers;
6. Proposed interest rate regime and loan balance calculation methodologies;
7. Any licenses authorizing business to operate; and
8. List of all apps in operation or intended for operation.

Submit documents required to support the application.

Applicants are required to submit the following documents to the FCCPC:

1. Certified copy of the certificate of incorporation of the applicant; 
2. A brief description of the business of the applicant and where relevant, its groups; 
3. Organogram showing role players and location of key role players and any operational approving authorities/person; 
4. Name and address of a person within the business who is authorized to accept all correspondence and accept service on behalf of the business; 
5. Evidence of membership in any trade or professional associations; 
6. Any service level agreements with any service providers with respect to operations but excluding administration;
7. Evidence of feedback and complaint resolution mechanism; 
8. Evidence of tax payments or tax waivers where applicable; 
9. All applicable fees associated with service; and 
10. Completed and signed FCCPC Interim Digital Money Lending Guidelines Form 002 (Declaration for digital money lending businesses in Nigeria).

Sign and submit the declaration for digital money lending businesses in Nigeria (Form DLG 002).

Applicants must keep their word regarding commitment to standards and best practices under the Framework for digital money lending business. This is why the directors or appointed representatives of the applicant (who are legally bound) are required to make certain declarations to the FCCPC. This includes the following:

1. The business is legitimate, lawful, and will operate in continuing compliance with any prevailing and applicable laws;
2. The digital money lender has complied with all applicable regulatory requirements and or approvals for any technology to be deployed in or used for the purpose of business in Nigeria;
3. The capital to be invested in the digital money lending business has no origin or flow that violates any law or is the proceeds of any illegal activity;
4. The digital money lender has complied with and will continue to comply with all provisions of law with respect to third-party privacy rights and personal data, including data unrelated to principles of lending as well as recovery practices that are consistent with fair lending principles and provided for under the FCCPA and the NDPR; and
5. The digital money lender’s processes and operations comply with the CBN Guidelines on Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT). 

From experience, note that to prove that a digital money lending platform complies with the requirements of the NDPR, the FCCPC requires that the applicant has submitted a data protection audit to the Nigeria Data Protection Bureau (NDPB).

After the application is submitted, the FCCPC may then approve, disapprove, or issue a conditional approval to the applicant.

Deadline for FCCPC approval further extended till 27 March 2023

By virtue of the FCCPC Framework, the FCCPC announced in January 2023 that it has approved a number of companies as digital money lenders in Nigeria. By 25 January 2023, 65 companies had received full approval from the FCCPC. This is out of 106 applicants. The remaining 41 companies were given conditional approval. According to the 10-March update by the FCCPC, 94 digital money lenders have been fully approved while 44 others were conditionally approved. 

Though the 90-day deadline for compliance that the FCCPC announced in August 2022 expired 14 November 2022, the deadline was extended till 31 January 2023. This has been further extended to 27 March 2023. According to the FCCPC, the further extension was necessary to ensure the completion of ongoing registrations as well as “to prevent significant market disruptions”. 

This is commendable. Regulation should primarily keep bad actors out. But it must also not shut the door against all actors. Though the FCCPC Framework is interim, the FCCPC should consider keeping the window for applications open until a substantive framework is ready.

Conclusion

It is no longer ‘business as usual’ in Nigeria’s fast-growing digital money lending marketplace. The illegal and unethical practices of loan sharks in the country have ensured that regulators introduce a regulatory framework for fairness, transparency, and other best practices. Consequently, any existing or intending digital money lender must ensure compliance. Without compliance, the legal existence and operations of any digital money lender is in question. To legally operate a digital money lender business in Nigeria, full compliance is to be taken seriously. 

As can be gleaned from above, compliance is a journey, not a destination. So apart from obtaining the necessary approvals, a digital money lender must ensure that it maintains best practices in order to continue to operate safely and securely. Besides, registration and compliance will benefit the digital money lender as well as the entire ecosystem, comprising FinTech businesses, platform providers such as Google and Apple, telecom operators, and traditional financial institutions. To get started, consult a law firm for professional guidance as soon as possible.