NIGERIA Law and Practice Contributed by: Isa Alade, Seyi Bella, Ayodele Adeyemi-Faboya and Ayomikun Ogunkanmi, Banwo & Ighodalo
4. Online Lenders 4.1 Differences in the Business or Regulation of Fiat Currency Loans Provided to Different Entities
to have also strengthened the underwriting pro - cess – given that the loans availed through these platforms are mostly provided without collateral. This has allowed the banks to underwrite loans for the mass markets with credit loss rates well below the industry average. Furthermore, the Global Standing Instruction mandate of the CBN became effective in August 2020 and is aimed at facilitating loan recovery from individual bor - rowers across the financial system. However, no specific regulations provide for a particular underwriting process for online lend - ers in Nigeria. Thus, general requirements appli - cable to traditional players will apply to online lenders. 4.3 Sources of Funds for Fiat Currency Loans There is no specific source of funds unique to fintech companies for online lending in Nigeria. However, the most common source is equity raised by lenders. Other funding sources include loans from shareholders or third parties, deposit- taking activities, instruments from the debt capi - tal markets, peer-to-peer bilateral funding, and securitisation. 4.4 Syndication of Fiat Currency Loans Loan syndications are quite popular in the Nige - rian financial market, albeit mostly with tradi - tional banking institutions as opposed to online lenders – given that the value of loans typically disbursed through online lending platforms tends to be small. Usually, where the value of a loan to be procured by a borrower is huge, a financial institution will pool together a syndicate of other banks to pro - vide the loan on similar terms. A security trus - tee is appointed to hold collateral provided by the borrower for the benefit of the syndicate of
Differences in the business or regulation of loans exist in Nigeria based on the nature of the borrower. Loans are typically provided under a commercial bank or MFB licence issued by the CBN. Although the commercial banking licence targets the general populace, MFBs target low- income earners, vulnerable groups, informal sector operators, micro-entrepreneurs, subsist - ence farmers and SMEs and provide loans with less stringent application and collateral require - ments. It is not unusual to see online or digital lenders collaborate with MFBs or obtain MFB licences, thanks to relaxed application and com - pliance processes compared with the traditional banks, with restrictions on the value of loans that may be granted to individual businesses. How - ever, traditional banks are not prevented from granting loans to similar entities – many of which have already introduced specialised online lend - ing products targeted at SMEs. Also, fintech companies that are not focused on holding deposits but instead on providing lending services within the geographical limits of a state may operate with a Money Lender’s licence under the Money Lender laws of the rel - evant state(s) in which they operate. The Money Lender’s licence application regime is less oner - ous than the other regimes, hence the attraction. 4.2 Underwriting Processes Online lenders are using deep-learning algo - rithms to process vast amounts of data and, more accurately, quantify the risk of default to improve underwriting processes. The introduc - tion of the Credit Reporting Act in 2017, which facilitates credit reporting and gathering, appears
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