Discover the Untold Truth Behind the Business Model That Keeps Non-Bank Lenders Thriving
When most people think of financial institutions, they think of banks. You know the drill: deposit money, earn interest, apply for a loan, rinse and repeat. But there’s a different breed in Nigeria’s financial ecosystem—finance companies that don’t take deposits like banks, yet still flourish.
Wait… no deposits?
No savings accounts?
So how on earth do these companies survive, let alone profit?
Welcome to the shadow lending economy—not in a sinister sense, but in the innovative, non-bank way that finance companies operate under the watchful eyes of the Central Bank of Nigeria (CBN).
In this post, we’ll unravel how Nigerian finance companies generate income without your deposits, explore their unique revenue models, and explain what it means for borrowers, investors, and supporters abroad—especially in Canada and the USA.
The Big Difference: Finance Companies vs. Banks in Nigeria
Let’s begin by addressing the elephant in the room.
| Features | Commercial Banks | Finance Companies |
|---|---|---|
| Can take deposits? | Yes | No |
| Offer savings accounts? | Yes | No |
| Regulated by CBN? | Yes | Yes |
| Can issue loans? | Yes | Yes |
| Can issue debit cards? | Yes | No |
| Use customer deposits to lend? | Yes | No |
| Rely on private capital? | Not heavily | Heavily |
So here’s the truth: finance companies in Nigeria cannot hold your money like a bank does. They can’t offer savings accounts, collect deposits, or provide fixed deposits. That power lies with licensed deposit money banks and microfinance banks.
Yet, despite this, finance companies like Page Financials, Zedvance, Rosabon, and C24 are not only surviving—they’re thriving. Here’s how.
So, How Do Nigerian Finance Companies Generate Income Without Deposits?
They do it by thinking differently. Unlike banks that use other people’s money (deposits) to lend, finance companies generate revenue by deploying their own capital, raising funds from investors, and offering high-interest, high-speed credit products.
Let’s break it down.
1. Interest on Loans (Their Core Revenue Stream)
This is the bread and butter of every finance company. They offer:
- Salary-backed loans
- Asset finance (buy-now-pay-later)
- Business loans
- Invoice discounting
- Personal cash advances
While banks might charge between 15–25% annual interest, finance companies often charge:
- 3–5% per month for unsecured personal loans
- 6–9% per month for riskier business or informal sector loans
- Even higher rates on emergency or payday credit
Multiply that across thousands of borrowers, and the interest alone becomes a strong revenue stream.
🧾 If a borrower takes a ₦200,000 loan at 4% monthly interest over 6 months, the company earns about ₦48,000 in pure interest revenue—excluding processing fees.
2. Loan Processing Fees and Administrative Charges
Unlike banks, which may bundle fees quietly, finance companies often itemize every service, such as:
- Loan origination fee (1–3% of loan amount)
- Credit check fee
- Documentation or administrative fee
- SMS/communication fee
- Insurance add-ons
These fees aren’t just nominal—they form part of the total cost of credit, increasing the company’s upfront earnings.
While some view this as excessive, it also reflects the speed, convenience, and risk finance companies take on—especially when giving out unsecured loans to people who may lack formal credit histories.
3. Lease Financing and Asset Rentals
Some finance companies—like Rosabon and VFD Finance—make money by buying high-value assets (cars, generators, electronics) and leasing them to individuals or businesses under structured repayment terms.
These are known as:
- Operating leases (you use the asset but return it after a set period)
- Finance leases (you eventually own the asset after payments)
Revenue here comes from:
- Monthly lease payments
- Service and maintenance charges
- Resale value of returned assets
Think of it as equipment monetization, and it’s incredibly profitable when paired with high demand for work tools or lifestyle upgrades.
4. Commission From Insurance Partnerships (Loan Protection)
CBN Guidelines require many finance companies to bundle insurance with their loans—especially credit life or asset protection insurance.
So, when you’re given a loan, you may be charged ₦1,500–₦5,000 for insurance coverage. While most of that goes to the insurer, finance companies earn commission per policy sold.
This creates an indirect income stream through partnerships with providers like:
- AXA Mansard
- Leadway Assurance
- Custodian Life Insurance
The more loans they issue, the more policies they bundle—and the more passive income they earn in return.
5. Investment of Internal Funds and Capital Gains
Since finance companies cannot take deposits, they operate with:
- Shareholder equity
- Debt from institutional investors
- Private capital from HNIs
- Diaspora bond investments
They lend these funds at high interest and invest idle capital in low-risk treasury instruments, including:
- Treasury Bills
- Commercial papers
- FGN bonds
- Money market funds
This dual approach—active lending + passive investment—creates blended returns, sometimes exceeding 30–40% per annum.
6. Business-to-Business (B2B) Financing and Factoring
Some Nigerian finance companies go beyond personal loans to offer:
- Invoice discounting
- Working capital for SMEs
- Payroll financing for small businesses
- Contract financing for vendors/suppliers
They generate income by purchasing unpaid invoices at a discount, then collecting the full amount later from large corporates or government entities.
In this model, the finance company profits from the spread between the discounted purchase price and the full invoice value.
7. Platform and API Monetization (Fintech Partnerships)
As more Nigerian finance companies adopt digital infrastructure, they’ve begun offering APIs, SDKs, and lending engines to fintechs who want to plug in.
Revenue comes from:
- API usage fees
- Revenue-sharing from partner disbursements
- White-label technology licensing
Companies like NowNow, OnePipe, and Sudo Africa provide infrastructure that enables other startups to offer loans—earning money without lending directly.
Comparison Table: Revenue Streams of Nigerian Finance Companies
| Revenue Source | How It Works | Profit Potential |
|---|---|---|
| Loan Interest | Earned from borrower repayments | 💰💰💰💰 |
| Loan Fees (processing/admin) | Charged during loan onboarding | 💰💰💰 |
| Lease Financing | Monthly payments from assets lent to individuals/businesses | 💰💰💰 |
| Insurance Commissions | Earned per bundled policy with each loan | 💰💰 |
| Treasury Investment Returns | Interest from idle fund placement in risk-free government securities | 💰💰 |
| Invoice Discounting/Factoring | Profit from buying future receivables at a discount | 💰💰💰💰 |
| API or Tech Platform Licensing | Partnering with fintechs to offer lending-as-a-service | 💰💰 |
What This Means for Diaspora Nigerians (Canada and USA)
If you’re based in Canada or the USA and:
- Supporting a business loan back home
- Considering investing in a finance company
- Advising family on where to borrow safely
You need to understand:
- These companies don’t use customer deposits, so their capital sourcing and risk tolerance are different.
- They tend to charge higher rates than banks—but offer faster, more flexible lending.
- Their income comes from volume, speed, and innovation—not traditional banking.
💬 Don’t compare a finance company to a commercial bank. Think of them more like a venture-backed lending machine.
What Are the Risks for Borrowers?
Finance companies need to make profits from fewer resources. That pressure can result in:
- Higher interest rates and shorter repayment windows
- Aggressive collections if payments default
- Fee-heavy loan structures (read the fine print!)
- Less stability during economic downturns (since they can’t rely on deposits)
This means borrowers must be:
- Financially disciplined
- Aware of total repayment obligations
- Selective—only choosing licensed and reputable lenders
How to Identify a Legitimate Finance Company in Nigeria (And Why It Matters)
In today’s rapidly expanding credit market, Nigerian finance companies are popping up everywhere—from physical offices in Ikeja to mobile loan apps on your smartphone. Some are highly professional and CBN-compliant, while others are nothing more than digital loan sharks masquerading as legitimate businesses.
As a borrower or sponsor—especially if you’re living in Canada or the USA and helping family members access credit back home—it’s essential to know how to spot the real players from the rogue ones.
Why?
Because choosing the wrong lender can mean:
- Harassment and public loan shaming
- Unauthorized access to your phone contacts
- Sudden interest hikes mid-repayment
- Disappearing support when something goes wrong
- Legal trouble over unclear or manipulated loan terms
Here’s a step-by-step breakdown to help you identify a truly legitimate Nigerian finance company before signing any loan agreement or recommending one to a loved one.
1. Check the CBN Licensing Status
The Central Bank of Nigeria (CBN) is the main regulator for all legitimate finance companies. Every registered finance company must be listed on the CBN’s official directory.
What to look for:
- Is the company’s name listed under the “Finance Companies” category?
- Is it marked as “Active” or “Operational”?
- Does it match the exact brand name used in their loan app or website?
If the company is not on the list, do not engage with them.
💡 Pro Tip: Some apps use different brand names from their registered company. Always trace the company behind the app.
2. Look for a Registered Corporate Affairs Commission (CAC) Number
Every legal finance company should have a CAC registration number (RC No.) that you can:
- Find on their website footer, legal pages, or app
- Cross-check on the CAC Public Search Portal
- Ask customer service to confirm (real companies will respond confidently)
A missing or fake CAC number is a clear red flag. If a company can’t even prove its existence, how can it be trusted to handle your money?
3. Check If They Clearly State Their Terms and Conditions
Reputable finance companies always present borrowers with:
- Transparent loan terms and repayment schedules
- A full disclosure of interest rates, processing fees, and penalties
- Repayment timelines and due dates
- Consent forms for BVN access or open banking APIs (e.g., Mono or Okra)
If you can’t find these before applying for the loan, or they’re hidden in fine print, walk away.
📣 Clarity is a right, not a favor. Hidden terms are a tactic of shady lenders.
4. Review Their Data Privacy Policy
Any finance company collecting your:
- BVN
- Phone number
- Contacts
- Location
- Bank details
…must have a data privacy policy aligned with the Nigeria Data Protection Regulation (NDPR).
To verify:
- Look for a “Privacy Policy” or “Terms of Use” page on their site or app
- Ensure it states how your data is stored, shared, and protected
- Confirm whether they ask for consent before accessing sensitive info
Apps that scrape your contacts without permission, or share your debt status publicly, are violating privacy laws—and CBN compliance standards.
5. Look for Clear Customer Support Channels
Legit companies don’t hide.
Check for:
- A functional customer care phone number
- Responsive email addresses
- A live chat or WhatsApp line on their app or website
- A physical office address (not a P.O. Box)
Test them. Ask a question via email or call their hotline. If no one answers, or you get rude or robotic replies, it may be a shell operation without any real support.
⚠️ Many loan scams operate without physical addresses or reachable agents. When problems arise, you’re left alone.
6. Evaluate Their Online Reputation
Take 15 minutes to do your homework:
Google Reviews
Search for “[Finance Company Name] reviews” or “[App name] complaints.”
What to look for:
- Does the app have a high volume of 1-star ratings?
- Are there reports of debt shaming, harassment, or overcharging?
- Are users saying “they deducted money without my consent” or “they messaged my contacts”?
Nairaland or Reddit
Forums often reveal the true nature of lenders. Real users share unfiltered experiences on platforms like:
Trust recurring themes more than one-off complaints.
7. Check the FCCPC Approved List of Digital Lenders
The Federal Competition and Consumer Protection Commission (FCCPC) created a live registry of approved digital lenders.
This list includes:
- Fully approved lenders
- Conditionally approved ones
- Illegal or faillisted companies
If the finance company you’re dealing with is missing from this list, avoid them entirely—regardless of how professional they appear.
📌 Even slick branding and fancy user interfaces don’t mean compliance. Check the list first.
8. Verify Their Loan App Permissions
When downloading a loan app on your phone:
- Check what permissions it requests.
- If it asks for camera access, SMS reading, contact list, gallery, or location, without justification—be suspicious.
Legitimate apps only ask for what they need, and usually notify you of the reason for requesting each permission.
9. Ask: Are They CBN-Regulated or Just State-Licensed?
Some companies operate legally under state moneylender licenses. While that’s not always a red flag, such licenses:
- Offer less borrower protection
- Are not enforced nationally
- May not require them to follow CBN’s strict consumer conduct rules
If a company operates under a state license only, ask more questions. They may be legal—but they may also be lightly supervised and more aggressive in recovery.
10. Evaluate Their Transparency During Onboarding
Before you sign or click “Accept,” ask yourself:
- Do I know exactly how much I’ll repay?
- Do I know the interest rate and tenure?
- Do I know when the first repayment is due?
- Do I have a contact person or support option?
If you can’t answer any of these, you’re dealing with a lender that hides critical information. That’s a dangerous sign.
Red Flags That Signal a Potentially Illegitimate Finance Company
Avoid any company that does the following:
- Sends you unsolicited loan offers via SMS/WhatsApp
- Asks for card PINs or OTPs during application
- Tells you to pay an “application processing fee” before approving
- Demands access to your entire phone contacts to approve a loan
- Claims to be “faster than banks” but won’t show you written terms
- Doesn’t mention CBN or FCCPC registration on their website/app
- Says “no need for BVN” (this may sound convenient—but it’s suspicious)
A Safe Loan Is an Informed Loan
In Nigeria’s high-speed digital lending world, it’s easy to get caught up in flashy offers and urgent cash needs. But rushing into a loan without verifying the lender can turn a short-term fix into long-term frustration.
Whether you’re a borrower in Nigeria, or someone in Canada or the USA helping a friend or family member back home, you owe it to yourself to choose responsibly.
📌 Ask questions. Verify credentials. Demand transparency. Your financial health depends on it.
Final Thoughts: Non-Bank Lending Isn’t a Shortcut—It’s a New Road Entirely
Nigerian finance companies have cracked the code: they don’t need to hold your money to make money.
Instead, they operate like agile entrepreneurs—funding themselves creatively, lending quickly, and charging smartly. But that speed and flexibility come with trade-offs: higher costs, greater risk, and thinner margins for error.
📌 As a borrower, your job is simple: borrow only what you understand, and only from lenders who are accountable.
And if you’re in the diaspora? Encourage your loved ones to choose regulated companies, read loan terms carefully, and never confuse speed for security.
