Money lending activities and the law


MR. John is a family friend who resides in Lagos. He was on a business trip to Abuja and decided to visit pay me a visit in my office some days ago. It was not supposed to be a business visit. Rather, we were supposed to have lunch together and use the opportunity to discuss personal matter.

However, it turned out that I had to provide pro bono legal advice for him because he sought my advice on what he could do to recoup a loan of N2, 000,000 which he gave to one of his business associates to revive his ailing business. His business associate had refused to refund the loan after two years, even though the initial tenor for the loan was six months. They agreed that his business associate would pay 25% per month as interest on the loan and this was documented in a signed agreement.

Already, Mr. John has contacted a lawyer in Lagos who has filed an action for recovery of the loan and the accrued interest on same as agreed, after all entreaties failed .Mr. John’s friend certainly has contacted another lawyer who has filed a defence to the case. The gist of the defence was that the court should declare the whole agreement between Mr. John and his business associate illegal because Mr. John not being a licensed money lender was not entitled in law to charge any interest on the loan! It was clear that my friend only wanted a second opinion. Our discussion today was inspired by my reaction to my friend’s story.

Generally speaking, it is a core principle of law of contract that the law expects parties to an agreement freely entered by them to honour the terms of such an agreement. Hence, courts do not engage in re-writing agreements for parties that come before them for adjudication. The Courts are only expected to interpret the content of the agreement between parties according to the law.

Suffice it to say that the law equally recognizes some factors that can vitiate an agreement. Some of these factors include plea of duress or undue influence and frustration. The law equally affords some statutory defences which, if raised by a party and if upheld by the courts, is capable of vitiating an agreement.

One of such statutory provision usually relied upon as a defence is the Money Lenders’ Law. This law makes it mandatory for anyone who is primarily into money lending business and is not a bank, to obtain a licence as a money lender. Obviously, the intention of the law is to regulate the activities of money lenders. Unfortunately, those who are unable to refund even friendly loans resort to this law in arguing that the courts should declare such agreements illegal and unenforceable against them.

In a country where it is difficult for people to raise capital to start a business or expand an existing one, people who give out money as loans to people, even at an interest, must be commended. It is no excuse to renege on a contractual obligation on the pretext that the interest is high so long as a party willingly and freely entered into it. The facts in the recent Supreme Court case of CHIDOKA V FIRST CITY FINANCE CO. LTD (2013)All FWLR (PART 659)1024 is the highest judicial attitude to reliance on the provisions of Money Lenders Laws to avoid the fulfillment of contractual obligations. In that case, the Appellants took a loan from the Respondent at an interest rate of 132% per annum.They defaulted in repaying the loan and the interest and sought to rely on the Money Lenders Law in urging the court to declare the transaction as illegal. The Supreme Court, adopting the earlier decision of the Court of Appeal (Kaduna Division) in ALHAJI ABDULLAHI IBRAHIM V MALLAM ZANGINA ABUBAKAR BAKORI Suit No.

CA/K/292/2066 held that the Court would not allow the Appellants, after collecting money from the respondent to do business, to now turn around to plead the Money Lenders law in order to escape the refund of the loan.
This Supreme Court decision, apart from reiterating its earlier position on the same point, equally made the point that the Money Lender Law was intended to apply only to persons who are really carrying on the business of money lending and not to persons who, like my friend, Mr.John, lend money as incidental to business or to a few friends who are in need.

I appeal to people who take loans from business associates to refund the loans and if for any reason you are unable to so do within the time agreed upon, to seek for understanding from those they took the loan from. It is unfair to bring this kind of legal argument when you have derived benefit from obtaining the loan. Do not reduce the chances of others getting a raise from people around them because of the bitter lessons from this kind of defence!


  1. Good morning, learned Counsel I thank you for your time well spent in this write up. I myself have a matter(moot court trial)which is similar to this one as early as this morning in the magistrate court.

    FACTS OF THE CASE: MY client who is not licensed gave money to one Mr Kano is friend who intends to borrow the sum of #5million Naira from my client for a business deal and to pay back with interest of 500,000 before within 5 months. My client who decided that the contract should be a gentle man’s contract, did not put it in writing. After something Mr Kano did import some tyres into the country which has now been confiscated by the custom on the ground that the product are Sub-Standard.
    The borrower has decided not to pay back and is relying ont he Money lenders law of Lagos State. That in the first instance, my client lacks authority to bring up a case because he is not lisenced

    My client has now seeked for my advise and as employed me as his lawyer to handle this case.

    Please honorable counsel how do I proceed? Because I intend to win this case. kindly reply as me, soon has praticiable


  2. Pls counsel I so much appreciate your education on this matter, I have a victim to this now, pls let me introduced my self, I have being involve in our local/traditional money collection business called osuso. Were every one will being contributing a said amount and at a particular time n date each person will be given to, I am 26years old then, when mine was given to me a member in this our osusu beg him to lend him the money given to me, that he want to use it to repay his keke, I gave him 40000 naira based on trust and we made agreement to pay me an interest of 5000 monthly, after a month time, it was my turn again to park and he came to me that is very close and reliable friend still need money that I should just give him the money, I agree and give him 60000 naira to pay interest of 7000 monthly. He sign as a guarantor to his friend which I don’t really known. The agreement was done in January 2016, so he paid me d interest till December last year. All thru out this year he refuse to pay me back both my capital and interest. Now the interest is 108000 naira as at September this year, we I approach him he will give me excuse and say he is not going to pay again, and I also find out that the said he brought was a fruad that it was him that use the money. Pls I need ur advice, if a should sue him will I win? Hw long will d case last? How much will a lawyer charge me for this kind of case. Pls note am not into money lending business I did it for him out if trust. The evidence is just d agreement on paper that will both sign with witness. Am looking favourably to hear from you. Because he is bragging around that I CNT do nothing.


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