The Smart Side of Lending: How Informal Money Lenders Thrive Within Legal Boundaries

This article revolves around the interpretation and application of the Money Lenders Law in the context of whether a transaction falls within its purview. Below is a structured analysis of case law and its implications.
Central Issue
The primary question is whether a loan transaction violates the Money Lenders Law as promulgated by various states in Nigeria, particularly where the lender is not a licensed money lender.
Reference Case: Chidoka vs. FCFC Ltd (2013) 5 NWLR (PT.1346) 144
This decision of the Supreme Court of Nigeria provides the foundational legal reasoning relevant to the current matter. The essential points include:
Facts of Chidoka vs. FCFC Ltd:
The respondent lent money to the appellant with an annual interest rate of 132%.
The respondent was not a licensed money lender, contrary to the requirements of the Money Lenders Law of Lagos State.
Legal Issue:
The loan agreement was contested on grounds of illegality due to the respondent’s unlicensed status.
Judicial Reasoning:
Coomassie JSC upheld the reasoning from a previous case (Ibrahim vs. Bakori) that incidental or informal loans do not classify the lender as a “money lender” under the law.
Emphasis was placed on whether the lending by the respondent was part of a systematic business activity or an isolated transaction.
Key Principle:
The law targets individuals or entities systematically engaged in the business of lending money, not occasional or incidental lenders.
Application to the Current Case
In light of Chidoka vs. FCFC Ltd (Supra), the following points are crucial in determining the legality of the transaction:
Nature of the Lender’s Activity:
If the lender’s primary business is lending money or they operate systematically in that capacity without the requisite license, the transaction would violate the Money Lenders Law.
However, if the loan was incidental (e.g., a one-time event or a loan between friends), the lender may not fall under the legal definition of a “money lender.”
Interest Rate and Agreement Terms:
An unusually high interest rate (e.g., 132%) might indicate commercial intent but is insufficient alone to classify the lender as a money lender under the law.
Legislative Intent:
The judgment reaffirms that the Money Lenders Law seeks to regulate professional money-lending activities and protect borrowers from predatory practices, not penalize informal or personal lending.
Precedent Value
The ruling in Chidoka vs. FCFC Ltd (Supra):
Clarifies the scope of the Money Lenders Law, distinguishing between licensed money lenders and casual or incidental lenders.
Reinforces the necessity for clear evidence of systematic lending to categorize a lender under the law.
Conclusion
In the present case, if the lender was not systematically engaged in the business of money lending but provided the loan as an isolated act (e.g., to assist a friend or business associate), the transaction does not violate the Money Lenders Law. The analysis in Chidoka vs. FCFC Ltd (Supra) provides strong authority for this interpretation, emphasizing the legislative intent and limits of the law’s application.