These Fintech companies are giving the traditional banks a run for their money. Expectedly, the traditional banks are playing a catch-up to be able to complete favourably with the Fintech startups.
These Fintech companies are rapidly driving financial inclusion in Nigeria.
FinTech leverages on technologies to offer financial services, up scales increased broadband penetration, which promotes financial services delivery in rural areas, provides consumers with bespoke services (digital banking, mobile lending and savings), promotes access to credit for small and medium-sized enterprises (SMEs), leads to increased efficiency of traditional financial institutions, and most importantly, drives financial inclusion.
FinTech companies is to drive financial inclusion using technology
Their major target is to reach out to the unbanked population which the conventional banks have not been able to reach.
What is Fintech?
FinTech which stands for financial technology is the application of software, hardware, mobile apps and other technologies to improve and automate the traditional means for financial transactions. FinTech is broad. FinTech includes any technology that simplifies financial transactions for businesses and consumers, facilitates financial include. FinTech companies leverage on AI, APIs, big data, encrypted blockchain technology, and cloud technology to facilitate highly secure transactions.
The FinTech industry in Nigeria is a fast-growing one. According to report published by Nairametrics, Frost and Sullivan estimated that Nigeria’s fintech revenue will be $543.3 million in 2022 which is higher than the $153.1 million that it was in 2017.
A research by McKinsey has shown that ease of access and convenience are the primary reasons consumers are switching to the use of FinTech solutions in their financial transactions.
The services offered by FinTech Companies include payment services, mobile transfer of funds, saving and investment solutions, access to loans, crowdfunding, and even international payments and transactions. All of these services are accessible via mobile applications which provide ease and convenience to consumers.
The industry has grown from being a catalyst of the traditional mode of banking to a major competition and disruptor in the same industry. The future tendency is that it might grow to distort the traditional financial system and dictate its navigation.
Read also: Benefits of Technology in Fund Management
Laws Regulating FinTechs in Nigeria
The industry is growing rapidly in such a way that the laws in Nigeria are currently inadequate to regulate the activities and operations of the businesses in that subsector.
Nigeria Startup Bill passed by the National Assembly, when signed into law by the president, will provide major legal framework for FinTech companies.
Until that piece of legislation comes on board, the following are the laws presently governing the Fintech business in Nigeria.
8 Fintech Regulatory Laws in Nigeria
- Banks and Other Financial Institutions Act (BOFIA) 2020
- Central Bank of Nigeria (CBN) Act 2007
- Companies and Allied Matters Act (CAMA), 2020
- Investment and Securities Act 2007
- Money Lenders Act
- Money Laundering (Prohibition) Act 2011
- National Information and Technology Development Agency (NITDA ) Act
Banks and Other Financial Institutions Act (BOFIA) 2020
BOFIA is the law that governs classification, licensing and establishment of financial institutions in Nigeria
There are there categories or types of banks in Nigeria under BOFIA
- commercial banks,
- merchant banks and
- specialised banks, this includes non-interest banks, mortgage banks, microfinance banks development banks,
- other financial institutions
No bank or financial institution is authorized to carry out banking or financial services business in Nigeria except one licensed under any of these categories listed above. A bank or any financial institution may be licensed to operate as regional or national bank in compliance with rules, regulations and guidelines on licensing, authorization, operation and conduct of business which CBN issues from time to time.
Going by the provisions of BOFIA, Fintech companies fall under microfinance banks and other financial institutions, and therefore, must comply with provisions of the Act.
Companies and Allied Matters Act, 2020
The Companies and Allied Matters Act (CAMA) is one of the laws that improves and supports Micro, Small, and Medium Scale Enterprises (MSMEs). The Act offers a legal foundation for how businesses operate in n Nigeria staring from formation of the businesses, their operations and winding up. CAMA provides legislative framework for regulatory quality and effectiveness, thereby enabling effective ease of doing business in Nigerian especially for MSMEs
Every intending business must register with Corporate Affairs Commission (CAC) before carrying out any business operations, and certificate incorporation or business name registration is a necessary document required to undertaker official business transactions.
Central Bank of Nigeria (CBN) Act 2017
Among other things, the Act provides that any company intending to provide financial services in Nigeria must apply and obtain a valid license from the Central Bank of Nigeria.
Although the CBN Act didn’t envisage financial services delivered via technology, the Central Bank has formulated policies that touch the financial services provided by the FinTechs. Hence, it has become applicable to them.
Central Bank of Nigeria Regulations on Scope of Banking Activities & Ancillary Matters , No. 3, 2010
This Act empowers the Central Bank of Nigeria to from time to time formulate policies and issue regulatory guidelines on scope of banking activities and other related matter
Some of these policies include:
- CBN Microfinance Policy, Regulatory and Supervisory Framework 2011,
- Guidelines for Licensing and Revised Guidelines for Finance Companies in Nigeria (2014),
- Guidelines on Mobile Money Services in Nigeria (2015),
- Regulation of Payment Service Banks in Nigeria (2008),
- CBN Risk-Based Cyber-Security Framework and Guidelines for Deposit Money Banks and Payment Service Providers 2018
Investment and Securities Act 2007
The ISA 2007 establishes the Securities and Exchange Commission and empowers regulates activities in the Nigeria capital market. The regulatory policies by the SEC also apply to FinTech companies listed or participating at stock market as it is saddled with the responsibility of protecting investors.
Money Lenders Act
The Money Lenders Act regulates all lending activities in the countries. It also provides for a money license, which is a legal requirement for companies that lend money for interest. FinTech companies that engage money lending business are to comply with the law.
Money Laundering (Prohibition) Act 2011
This act provides for full disclosure and reporting of financial transactions by individuals and corporate organization in its effort to prevent money laundering.
National Information Technology Development Agency Act
The act is the law establishing the National Information Technology Development Agency. The empowers the Agency create framework for the planning, research, development, standardization, application, coordination, monitoring, evaluation and regulation of Information Technology practices in Nigeria. Fintech companies in Nigeria must comply with the provisions of the Act, and submit itself to the regulatory authority of the NITDA
Note: the above laws are laws exclusively governing financial institutions including Fintech. There are still other laws governing all businesses in Nigeria
Read also: How Fintech Companies Make Money