Lending Money With Interest in Nigeria? Read This Before You Do
Lending money sounds simple — until interest enters the picture.
Many people in Lagos casually lend money to friends, colleagues, or acquaintances and add a small interest, thinking it’s harmless. But under Lagos State law, that “small interest” can make the entire agreement illegal and unenforceable.
Here’s what you need to know.
Can a Private Individual Charge Interest on a Loan in Lagos?
Short answer: No — not without a licence.
If a private individual (not a licensed money lender) lends someone ₦100,000 and demands ₦110,000 in return, the interest portion is illegal under Lagos law.
Once interest is added, the law no longer sees it as a friendly loan. It becomes a money-lending business.
What the Law Actually Says
Under the Money Lenders Law of Lagos State, lending money with interest without a valid money-lender’s licence is unlawful.
Specifically, Section 6(b) provides that:
Any person who carries on the business of money lending without a licence commits an offence.
This offence is punishable by:
- A fine, or
- Imprisonment, or
- Both
That means the issue isn’t the amount — it’s the act of charging interest without authorisation.
What Happens to the Loan Agreement?
This is the part many people don’t realise.
If you are not licensed and you add interest:
- The loan agreement can be declared invalid
- The court may refuse to enforce the interest
- In some cases, the entire agreement may collapse
You may still recover the principal (the ₦100,000), but the ₦10,000 interest is legally vulnerable.
Lending vs Money-Lending: The Legal Difference
The law draws a clear line:
Legal
- Lending money without interest
- One-off loans based on goodwill or assistance
Illegal (without licence)
- Adding interest
- Repeating the practice
- Treating lending as a source of income
The moment interest is introduced, it becomes commercial activity, not goodwill.
Why This Matters in Real Life
This issue comes up often when:
- Friends fall out
- Borrowers refuse to pay interest
- Lenders try to sue for repayment
- WhatsApp chats and IOUs are taken to court
Many lenders are shocked to learn that they are the ones in legal trouble, not the borrower.
Who Can Legally Charge Interest?
Only:
- Licensed money lenders
- Banks
- Microfinance institutions
- Registered finance companies
If you don’t fall into one of these categories and don’t have a licence, charging interest is risky.
Key Takeaway
You are free to lend money in Lagos.
But once you add interest without the proper licence:
- The agreement may be invalid
- The interest may be unrecoverable
- You may be committing an offence under Lagos law
Before lending money with interest, understand the legal consequences — because good intentions don’t override the law.
This article is for general information only and does not constitute legal advice. For specific situations, consult a qualified legal professional.
