When Does a Loan Transaction Become Money Lending Under Nigerian Law?

Loan transaction

Introduction

Loan transactions are common in Nigeria between friends, family members, business associates, companies, and financial institutions. However, disputes often arise when a borrower attempts to avoid repayment by arguing that the lender was operating as an unlicensed money lender.

Nigeria Courts have repeatedly clarified that not every person who gives out a loan automatically becomes a “money lender” under the law. This distinction is important because the various Money Lenders Laws operating across Nigerian states impose legal obligations, licensing requirements, and restrictions on persons whose business is money lending.

The determining factor is not merely whether interest was charged, but whether the lender is actually engaged in the business of money lending as a primary commercial activity.

Who Is a Money Lender Under Nigerian Law?

The definition of a money lender under the various state Money Lenders Laws is generally broad. A money lender is commonly described as a person whose business is that of lending money or who advertises, announces, or holds himself out as carrying on money lending business.

The Court of Appeal in ONABUREKHAN v. DENNI-FIBERESIMA(2021) LPELR-56487(CA)(Pp 19 – 22 Paras F – D) explained that a money lender generally includes a person whose business is that of lending money or who holds himself out as carrying on that business.

The Court also identified categories of persons who may lend money without necessarily being classified as money lenders under the law. These include:

Banks and insurance companies;
Cooperative societies;
Certain corporations empowered by law to lend money;
Persons whose primary business is not money lending but who occasionally lend money in the course of business;
Licensed pawnbrokers within statutory limits.

The Court emphasized that the key issue is whether the lender’s primary business is money lending.

Charging Interest Alone Does Not Automatically Make a Person a Money Lender

Many people assume that once interest is charged on a loan, the transaction automatically falls under the Money Lenders Law. Nigerian appellate Courts have clarified that this is not always the case.

In EREMERUWOU v. OBIBILAGBA (2021) LPELR-56724(CA)(Pp 13 – 20 Paras B – D), the Court reaffirmed that a person may lend money at interest without necessarily being regarded as a money lender if lending money is not the primary object of the person’s business.

Similarly, in KORI & ANOR v. YUSUF(2019) LPELR-49464(CA)(Pp 6 – 10 Paras F – D), the Court held that occasional loans between friends or business associates do not automatically amount to money lending business merely because interest was agreed upon.

Also, in EL-MICHELLE LTD & ANOR v. PELOMEACH LTD, the Court held that the Money Lenders Law does not automatically apply to every person who gives a loan. The Court stressed that the law was intended to regulate persons genuinely carrying on money lending business and not persons who occasionally lend money as an incidental activity.

The Courts have consistently distinguished between:

persons carrying on organized money lending business; and
persons who occasionally assist friends, associates, or business partners financially.

When a Licence Becomes Necessary

Where a person is truly carrying on the business of money lending, most state Money Lenders Laws require that person to obtain a valid money lender’s licence.

Failure to obtain the required licence may have serious legal consequences.

In SULEIMAN v. JIMBASH NIGERIA LTD & ANOR (2014) LPELR-24615(CA)(Pp 29 – 30 Paras B – A), the Court held that transactions entered into by an unlicensed money lender may become illegal, void, and unenforceable.

The Court relied on earlier authorities establishing that where a person conducts money lending business without the necessary licence, the Courts may refuse to enforce the transaction.

Can a Private Individual Legally Give a Loan?

The answer is yes. The Courts have recognized that private individuals may validly lend money without necessarily being licensed money lenders.

In JITENG GANA INVESTMENT (NIG) LTD & ANOR v. ADEBAYO (2025) LPELR-82057(CA)(Pp 31 – 32 Paras B – B), the Court clarified that the Money Lenders Law of Adamawa State does not completely prohibit private individuals from lending money.

According to the Court, a private individual may validly lend money provided the transaction does not violate statutory restrictions relating to interest rates and other applicable provisions of the law.

The Court interpreted the relevant provisions to mean that:

both registered money lenders and ordinary persons may lend money;
the applicable interest rates must comply with statutory limits; and
a person does not automatically become an illegal money lender merely for giving a loan.

The Court also held that where borrowers themselves fail to repay within agreed timelines, they may not benefit from their own default where the delay increases the effective interest burden.

This means that not every private loan arrangement becomes unlawful merely because the lender is not formally registered as a money lender.

Presumption That a Person Is a Money Lender

Many state Money Lenders Laws contact provisions creating a rebuttable presumption that a person who lends money at interest is a money lender until the contrary is proved.

However, the Courts have explained that this presumption can be rebutted by evidence showing that:

the lender is not engaged in money lending business as a primary occupation; or
the transaction was merely occasional or incidental.

The interpretation of this statutory presumption received extensive judicial analysis in AWUTOLO (W/A) LTD & ANOR v. OKOLO(2023) LPELR-59808(CA)(Pp 52 – 58 Paras D – E).

The Court clarified that:

the statutory presumption applies unless the lender falls within recognized exceptions;
the presumption does not automatically depend on proof that the lender publicly advertised as a money lender; and
the burden may shift to the lender to rebut the presumption.

The Court warned against interpreting the law in a manner that would render the statutory presumption meaningless.

Effect of Excessive or Unauthorized Interest

The Courts have also warned that charging unauthorized or unlawful interest rates may render a loan transaction illegal and unenforceable.

In OGUNTUWASE v. JEGEDE (2015) LPELR-24826(CA)(Pp 41 – 41 Paras B – E), the Court reiterated that a loan transaction involving unauthorized interest in violation of the Money Lenders Law may amount to an illegal contract which the Courts will not enforce.

The legality of the interest charged therefore remains an important consideration in loan transactions.

Loan Agreements and Contractual Obligations

Even where the Money Lenders Law applies, Nigerian Courts generally uphold properly drafted loan agreements where the terms are lawful and clear.

In UMARU v. PARIS & ANOR (2021) LPELR-56309(CA)(Pp 9 – 11 Paras D – E), the Court emphasized that parties who reduce their agreement into writing are ordinarily bound by its terms.

The Court held that where the agreement itself did not provide for unlawful interest, the transaction could not automatically be treated as illegal under the Money Lenders Law.

Similarly, in ETIEMONE v. APINA (2019) LPELR-47258(CA) (Pp 20 – 23 Paras B – B), the Court affirmed that valid contracts remain binding on parties. However, the Court also clarified that the existence of a valid contract does not necessarily exclude the application of the Money Lenders Law where the transaction genuinely involves money lending.

The Court further held that limitation provisions under the applicable Money Lenders Law may still apply to such transactions.

In the same case, the Court also discussed whether admissions made during negotiations could revive a statute-barred claim and examined the legal meaning of admissions in civil proceedings.

A properly drafted loan agreement may therefore help define:

the amount borrowed;
repayment terms;
applicable interest;
default provisions; and
dispute resolution mechanisms.

Key Takeaways

From the decisions of the Nigerian appellate Courts, the following principles emerge:

Not every lender is a money lender under Nigerian law.
Charging interest alone does not automatically make a person a money lender.
The major determining factor is whether money lending is the lender’s primary business.
Occasional loans between friends, business associates or private individuals may fall outside the Money Lenders Law.
Persons genuinely carrying on money lending business generally require a licence.
Illegal, unauthorized or excessive interest may render a transaction unenforceable.
Written agreements remain extremely important and binding on parties.
The Money Lenders Law may still apply even where parties executed a valid contract.

For further reading on debt recovery, loan transactions, and financial disputes in Nigeria, see:

Disclaimer

This article is provided for general informational and educational purposes only and does not constitute legal advice, legal opinion, or solicitor-client relationship. Money lending transactions may be governed by different state laws and specific factual circumstances. Professional legal advice should be obtained before entering into, enforcing, or disputing any loan or money lending arrangement in Nigeria.

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