WONDER BANKS IN NIGERIA – A LEGAL CRITIQUE

IS FORMATION OF COMPANY MANDATORY BEFORE CARRYING ON ANY BUSINESS IN NIGERIA?

Sections 18 and 19 of the Company & Allied Matters Act, (CAMA) CAP C20 LFN 2004 made it mandatory for the incorporation of companies, associations or partnership for the purpose of carrying on business for profit or gain.

The Statute also made it mandatory as part of the requirements that Companies etc at incorporation must have a Memorandum of Association and Articles of Association which act as the constitution regulating both the internal and external activities of the company etc. section 39 of CAMA provided that businesses not listed in the object clause of the MEMAT would be declared ultra vires.

The foregoing shows that any two or more persons as the case may be can come together to form a company after satisfying the conditions precedent as laid down by CAMA.

WHO CAN ENTER INTO DEPOSIT & LENDING OF MONEY BUSINESS IN NIGERIA?

The Banking business in Nigeria is regulated by the Banks & Other Financial Institutions Act CAP B.3 LFN 2004 (BOFIA). Section 66 BOFIA (Interpretations section) defines Bank as a Bank licensed under this Act and Banking business as the business of receiving deposits on current account, savings account or other similar accounts, paying or collecting cheques, drawn by or paid in by customers, provision of finance or such other business as the governor may by Order published in the Federal Gazette, designate as banking business.

It defines Financial Institutions as any individual, body, association or group of persons, whether Corporate or Unincorporated, other than the banks licensed under this Act which carries on the business of a discount house, finance company and money brokerage and whose principal objects include factoring, project financing, equipment leasing, debt administration, fund management, private ledger services, investment management, local purchases, order financing, export finance, project consultancy, financial consultancy, pension fund management and such other business as the bank may, from time to time designate.

Section 2 (1) and (2) of BOFIA provides that no person shall carry on any banking business in Nigeria except if the company is duly incorporated in Nigeria and holds a valid banking licence issued under this Act. A contravention of this provision is an offence punishable upon conviction for a term of imprisonment not exceeding 10 years or to a fine of N2,000,000.00 or both.

Section 3 BOFIA provides for the requirements and steps for the granting of licence and the CBN is conferred with the powers to implement this Act subject to the overall supervision of the Minister.

This shows that the business of banking is not an exclusive preserve of any particular person or persons but its opened to persons who meet the requirements as stipulated under CAMA and BOFIA.

CAN AN INDIVIDUAL OR PERSONS ENGAGE IN THE BUSINESS OF MONEY LENDING?

An individual, company or partners can engage legally in the business of money lending. This is regulated by the Money Lenders Laws of the various States as the business of money lending is not covered under the 1^st schedule (exclusive legislative list) and the 2^nd schedule (concurrent legislative list) of the 1999 constitution of the Federal Republic of Nigeria. It therefore falls into the Residual list, making it right for the various states to legislate on the business of money lending in accordance with the requirements and peculiarities of their socio-economic environment.

The money lending business in Lagos State is regulated by the Money Lender’s Law of Lagos State CAP. M7. Section 2 of the Law (Interpretation section) defines a money lender as everybody whose business is that of money lending or who carries on or advertises or announces himself or holds himself out in any way as carrying on that business, whether or not he also possesses or owns property or money derived from sources other than the lending of money and whether or not he carries on the business as a principal or as an agent; but shall not include:

·         Any co-operative society

·         Anybody corporate incorporated or empowered by special enactment to lend money in accordance with such enactments.

·         Any person bona fide carrying on the business of banking or insurance or bona fide carrying on any business, not having for its primary object the lending of money, in the course of which and for the purposes whereof he lends money.

·         Any pawn broker licensed under the pawn brokers Law where the loan is made in accordance with the provisions of the pawn brokers Law and does not exceed the sum of N40.00

Section 4 of the Money Lenders Law of Lagos State further enlarged the scope of persons presumed to be money lenders to include any person who lends money at interest or who lends a sum of money in consideration of a larger sum being repaid shall be presumed a money lender until the contrary is proved.

REQUIREMENTS/PROCEDURES FOR ENLISTMENT AS A MONEYLENDER OPERATOR IN LAGOS STATE

Section 5 of the Law provides that no one can operate as a money lender under the Law without the moneylender’s licence. The Licence is given after the intending money lender has fulfilled some requirements.

The person shall first apply to the Magistrate of the district in which the money lenders business is to be carried on for Certificate. At the issuance of the certificate, he shall present it to the State Commissioner who upon satisfaction shall issue the applicant the Licence to carry on business of Money lending. The Certificate and Licence have a year life span and shall expire on the 31^st of December next following respectively. This however is renewable.

The certificate as issued shall not authorize the money lenders carry on the business of money lending except:

·         He does so in his true names

·         The name of a firm in which he is a partner, not being a firm required by CAMA part B, business name to be registered.

·         Or business name whether of an individual or firm in which he is a partner under which he or the firm has at the commencement of this Law, been registered for not less than 3 years both as a money lender under the money lenders law and under CAMA part B, Business names.

·         It shall not include the word ‘BANK’ or otherwise implies that he carries on banking business.

It is worthy to note here too that every money lender shall have a current account with a licenced Bank. The money lenders are by section 15 of the Law restricted from charging arbitrary interests on monies lent. The issuance of Licence for money lending business is overseen by the State Commissioner and the State Commissioner equally has the prerogative to exempt any person from some or even all of the requirements (Section 3 CAP M7)

ARE WONDER BANKS OPERATING LEGALLY UNDER THE EXISTING STATUTES?

From the studies so far made, it is clear that the wonder banks as we know them today by their modus operandi cannot either be classified under Banks as provided and regulated by BOFIA or Money Lenders as provided under the Money Lenders Law of Lagos State, CAP M7.

The Wonder Bank to say the least is an aberration to the economy. They not only do not act in line with existing statutes regulating all forms of banking and money businesses including Money Lending Business, they have also led to the failure of many businesses and monumental fraud on unsuspecting citizens.

It makes a mockery of common sense to allow such an engine of fraud to keep on operating in our environment.The moment to act is now!