04 Dec Unlicensed Individual Money Lender Rights, Enforcement And Interest Payments In Ghana
In Ghana, lending transactions are primarily regulated by the Borrowers and Lenders Act, 2020 (Act 1052). Section 85 of Act 1052 defines a lender as any person who “enters into a credit agreement with a borrower”. In effect, anyone who provides a credit facility, a credit transaction, or a guarantee to a borrower under an agreement is a lender.
The Bank of Ghana has categorized the types of lenders under banks, savings and loans companies, rural and community banks, microfinance companies, micro-credit companies, trade creditors, finance and leasing companies, financial non-governmental organizations, mortgage finance companies, leasing companies, foreign-based lenders, individuals, credit unions, and public institutions.
It is clear from the list provided above that individuals can also lend money to people.
It must be noted that the Bank of Ghana requires all persons engaged in activities that involve deposit-taking or the grant of credit to obtain a license or an exception from the Bank of Ghana before commencing or continuing such activities. As such, unless an exception is made for an institution or an individual, an operating license granted by the Bank of Ghana will be required to be recognized as a legally operating lender in Ghana.
Given this, the Bank of Ghana has laid down procedures for the application for a license as a lender. For the purposes of this discussion, the focus is on individual money lenders.
Licensing of Individual Money Lenders
Pursuant to Section 8 of the Banks and Specialized Deposit-Taking Institutions Act, 2016 (Act 930), the Bank of Ghana has categorized the types of licenses into four (4) tiers. Individual money lenders and enterprises fall under the Tier 4 category.
The Bank of Ghana requires all Tier 4 operators to belong to an umbrella association of which an example is the Ghana Cooperative Susu Collectors Association (GCSCA). These individuals are required to complete a preliminary license registration as lenders and register with an umbrella organization. Following these steps, both a preliminary form and a personality profile form endorsed by the relevant executives of the umbrella association are lodged at the Bank of Ghana with a payment of GHS 100.00 and GHS 500.00 being the application processing fee and licensing fees respectively.
Umbrella associations of Tier 4 institutions are mandated to collect and collate statistics on the operations of their members and furnish this to the Bank of Ghana periodically as may be determined.
Can an Unlicensed Individual Money Lender enforce an interest charge?
Individual money lenders are at liberty to grant credit for such tenors as agreed between the lender and the borrower. In fact, in the spirit of party autonomy, where parties have voluntarily entered into an agreement, the duty of the court is to give effect to the terms voluntarily agreed by the parties.
However, there is a school of thought that holds that permitting an unlicensed money lender to charge interest would mean incentivizing people to engage in illegal lending business. Consequently, proponents of this view argue that a person who lends money to people without an operating lending license must be deprived of any interests accruing on the principal amount lent.
The Supreme Court in the case of Ahenfie Cloth Sellers Association v Philomena Mensah and Ors (Mensah case) explained clearly that where loan agreements are entered into at a time when the lender was unlicensed, the absence of a lending license does not invalidate or void the transaction. Based on the old regime (Moneylenders Act, 1941 (CAP 176)), the court emphasized that where a lender is unlicensed, any transaction entered into between the lender and a borrower should be re-opened only where the court finds that “the interest charged on the amount lent is harsh and excessive and therefore unconscionable.”
It can be implied from the above that if a transaction entered into by a lender who has no license to operate as a money lender is voidable and can be reopened, then the absence of a license in itself will not deprive the lender of interest even when the agreed interest rate is unconscionable. It is pursuant to this reasoning that the Supreme Court in the Mensah case re-opened the transaction and reduced the interest rate from 52% to 40%. Thus, under the old regime, the Supreme Court held a different view from that of the school of thought against the enforcement of interest charges.
In recent developments, the Court of Appeal in the case of Royal Beneficiaries Association v Esther Okailey Asare & 3 Ors held that the trial court erred when it failed to consider that the court of equity would not allow “unjust enrichment to allow the respondents who knew that the loan had been sourced from the Ghana Commercial Bank to make use of it and refuse to pay back at the least the principal amount”. Therefore, in consonance with the reasoning of the Supreme Court in City & Country Waste Ltd v. Accra Metropolitan Assembly, the court deemed it imperative to balance the need to deny enforceability to the contract against the need to prevent unjust enrichment of the defendant as the interest of justice requires that the courts seek to reverse the unjust enrichment of borrowers when they retain the benefits of loans procured over a period without any payment for them at a reasonable rate.
In the Mensah case, the Supreme Court held that if a lender leads evidence to prove that he or she is not a money lender as defined by law and that the transaction is an exception to transactions that require a license, the borrower shall be ordered to pay whatever interest the parties agreed upon. Failure to prove that he or she is not a money lender will lead to the reopening of the transaction to ensure that it is reasonable and conscionable.
In a nutshell, the mere fact that a lender is not licensed will not disentitle that lender to the interest agreed upon voluntarily by the parties. Where established by the court that the agreed interest rate is harsh or unconscionable, the court may consider factors such as the necessities of the borrower, the pecuniary position of the borrower, the relationship in which the lender stands to the borrower, and the total amount to be derived by the lender from the whole transaction, to reopen the transaction to review the interest rate.
This publication may provide a summary of legal issues but is not intended to give specific legal advice. If you require legal advice, please speak to a qualified lawyer, which may include a qualified member of our legal team at B&P ASSOCIATES (firstname.lastname@example.org).
 Bank of Ghana Rules for the Effective Implementation of the Borrowers and Lenders Act – Notice No BG/GOV/SEC/2011/07
 Bank of Ghana Notice to Banks, Non-Bank Financial Institutions and the General Public – Notice No. BG/GOV/SEC/2011/04
 Bank of Ghana Notice on Requirements for Applying for Microfinance Institution Licence.
 [unreported Supreme Court Decision] Civil Appeal No. J4/7/2010 delivered 21 July 2010
 Ahenfie Cloth Sellers Association v Philomena Mensah and Ors [unreported Supreme Court Decision] Civil Appeal No. J4/7/2010 delivered 21 July 2010
 Unreported Decision, Suit No: H1/191/2013 Delivered on 3 December 2015
 [2007-08] SCGLR 409