Legality of the Agreement

Under Nigerian Civil Law, particularly in the context of money lending and microfinance banking, a contract may be considered invalid, unenforceable, or void in the following situations:

1. Illegal or Unlicensed Money Lender

According to the Money Lenders Act, any money lender operating without a valid license from the relevant state authorities or the Central Bank of Nigeria (CBN) is illegal, making contracts with them unenforceable

2. Unconscionable or Exploitative Terms

Contracts with excessive interest rates or hidden fees may be deemed unconscionable and unenforceable under consumer protection laws.

The Central Bank of Nigeria (CBN) caps interest rates for microfinance banks and regulates fair lending practices.

3. Fraud, Misrepresentation, or Coercion

A contract is voidable if the lender used deception, misleading statements, or threats to force a borrower into signing.

Section 19 of the Money Lenders Act states that fraudulent or deceptive lending practices can make a loan agreement unenforceable.

4. Breach of Privacy & Harassment by Loan Apps

Loan apps that invade borrowers’ privacy by sending defamatory messages to contacts violate the Nigerian Data Protection Regulation (NDPR).

FCCPC has declared harassment by loan apps as illegal, and contracts based on such practices can be challenged as invalid.

5. Absence of a Proper Written Agreement

Under the Money Lenders Act, any loan exceeding ₦20,000 (varies by state) must have a written agreement signed by both parties.

If there is no signed agreement, the lender may not be able to enforce repayment legally.

6. Violation of Loan Tenure & Repayment Rules

CBN guidelines on microfinance lending specify minimum and maximum repayment tenures.

A contract that violates these guidelines may be challenged.

7. Duress or Undue Influence

If a borrower is forced to sign under threats, blackmail, or undue influence, the contract is invalid under Section 20 of the Contract Law of Nigeria.

8. Lending to a Minor

A loan contract with anyone under 18 years old is automatically void under the Nigerian Contract Law.