Money business loans

A local lending (“money business”) can work in Nigeria, but it’s not forgiving. The upside is steady cashflow; the downside is default, disputes, and regulatory exposure. Treat it like a micro–financial institution from day one, not a casual side hustle.
Is it advisable?
Yes—conditionally.
It’s advisable if you:
Enforce strict credit discipline
Keep tight records and collections
Price for risk (not sympathy)
Respect legal boundaries
It’s not advisable if you:
Lend based on emotion or relationships
Lack a recovery process
Don’t understand basic credit risk
The three risks that kill most lenders
1) Credit/default risk
Expect some borrowers to delay or not pay. Early-stage, assume 10–30% impairment risk if controls are weak.
2) Operational risk
Poor tracking → missed payments, disputes, cash leakage.
3) Legal/reputation risk
Harassment or public shaming can backfire. As you scale, oversight from the Central Bank of Nigeria becomes relevant.
How to operate properly (practical framework)
1) Start narrow and small
Capital: ₦100k–₦300k to pilot
3–5 borrowers max
One segment only (don’t mix profiles yet)
2) Pick a segment (underwrite differently)
Salary earners → lower risk, lower rate
Market traders → higher risk, faster cycles
Micro-SMEs → moderate risk, business cashflow-based
3) Define product terms clearly
Every loan must have:
Principal
Tenor (e.g., 14/30/60 days)
Interest (risk-based)
Repayment schedule (daily/weekly/bullet)
Example:
₦50,000 for 30 days → repay ₦60,000 (20%)
4) Basic underwriting (don’t skip)
Minimum checklist:
Valid ID + verifiable phone
Address/market location
Income/cashflow proof (salary slip or business turnover pattern)
Guarantor (traceable)
Existing debt obligations
Simple rule: If you can’t verify, don’t lend.
5) Collateral / risk mitigants
You’re not a charity.
Options:
Pledged asset (phone, TV, generator)
Post-dated cheque (salary earners)
Salary account visibility
Inventory control (for traders)
No collateral → price higher or decline.
6) Collections system (this is where profit is made)
Daily/weekly touchpoints (not silence until due date)
Reminders T-3, T-1
Same-day follow-up on missed payment
Pre-agreed penalties for lateness
7) Record keeping (non-negotiable)
Track:
Disbursement date
Due date
Amount due vs paid
Arrears aging (1–7 days, 8–30 days, etc.)
Even a simple spreadsheet works—but it must be updated daily.
Pricing: don’t undercharge
Your rate must cover:
Defaults
Your time/operations
Inflation risk
Typical bands (context-dependent):
Salary earners: 5–10% (monthly)
SMEs: 10–20%
Informal traders: 15–30%+
If you charge too low, one default wipes your margin.
Capital protection rules (hard rules)
Single borrower cap: ≤20% of your total capital
Cash reserve: keep 10–20% un-lent
Stop-loss: pause new lending if arrears >15–20% of book
No rollover without penalty (it encourages indiscipline)
Common mistakes to avoid
Lending to friends/family without terms
Increasing loan size too quickly
No guarantor or weak guarantor
Poor follow-up (“I’ll remind him later”)
Mixing business cash with personal spending
Scaling path (if it works)
Register a business name
Separate bank account
Standard loan agreement
Basic MIS (tracking system)
Gradually increase ticket sizes based on repayment history
Over time, you’re essentially building a micro-lending operation—similar in structure (not scale) to players like FairMoney or Carbon.
Bottom line
Advisable if you run it with discipline, documentation, and firm collections
Dangerous if you run it on trust and emotions