The rise of online lenders raises challenges, opportunities and questions including, which regulator has jurisdiction and how the traditional lenders will respond. The case of the fraudulent MMM scheme that crashed dramatically in 2016 with its entire investors fund can be argued to be Nigeria’s first well-known peer-to-peer enterprise.
Although the online loan market in Nigeria is in its infancy, there is already disagreement over the appropriate level of regulation. One side of the debate cautions against regulating online small business lending too early for fear of cutting off innovation that could provide valuable products to small businesses. However, there is concern that if left unchecked, online lending could create a lending crisis.
Traditional lenders are weighing into the debate as well, fearing that stronger regulatory oversight by the CBN is leaving them less competitive relative to new entrants that have to date operated in largely unregulated markets. In recent years, the legal and regulatory environment of Nigeria has been undergoing a necessary process of modernization, harmonization and establishment of more effective enforcement mechanisms.
The statutory regulatory institutions regulate respective individual operators, including products they issue and also authorize individuals through their sponsored functionalities. They license, make rules and regulations, supervise and sanction breaches. The Financial Services Regulation and Coordinating Committee (FSRCC) is a non-statutory body that was set up to provide top level forum through which the five statutory regulators meet quarterly with a view to preventing regulatory arbitrage.
The main statutory regulatory institutions are:
- Central Bank of Nigeria (CBN)
- Securities and Exchange Commission (SEC)
- Nigerian Insurance Commission (NAICOM)
- National Pension Commission (PenCom)
- Nigerian Deposit Insurance Corporation (NDIC)
The Investment and Securities Tribunal, Nigerian Stock Exchange, Debt Management Office, and the main professional bodies/associations, e.g. Money Market Association, Chartered Institute of Bankers, Association of Issuing Houses and Chartered Institute of Stockbrokers, provide additional regulatory support and assist in enforcing market discipline amongst respective professional members and market participants.