Finance Law :- How to set up a Licensed Finance Company in Nigeria

One category of business which many people in Nigeria are still not clear about is the Financial of Finance Company, which is simply a type of company licensed to provide Financial services to individual consumers and Corporate entities.

This article will be dedicated to discussing the following topics of:-

– The Regulatory Framework governing Finance companies.

– The licensing requirements for Finance companies.

– A clear understanding of what Finance companies can and cannot do .

What is the Regulatory Framework governing Finance companies in Nigeria? 

Finance companies in Nigeria are licensed and governed by the Central Bank of Nigeria through the Banks and Other Financial Institutions Act (BOFIA) &  its CBN Guidelines For Finance Companies in Nigeria 2014(or “The Guidelines”). 

What are the stated permissible and non-permissible activities for Finance companies under the Guidelines? 

The following activities are deemed permissible for Finance companies under the guidelines :- 

– Consumer Loan services.. 

– Funds Management. 

– Asset Finance(Finance Lease & Hire purchase services).

 – Project Finance services. 

– Local & International Trade Finance services. 

– Debt factoring, securitization & administration. 

– Loan Syndication. 

– Warehouse receipt finance, coupons , cards and covered bonds. 

– Financial Consultancy services and Token stamps 

The following activities are however deemed non-permissible for Finance companies:- 

– The taking of Monetary Deposits. 

– Stock-Broking activities. 

– Forex transactions. 

– Trading, Construction & Project management activities. 

It should be noted that companies engaging strictly in operating lease services are not governed by the Central Bank of Nigeria. Also, Finance companies are specifically required under the Guidelines to operate on a stand alone basis. 

What is the procedure for acquiring a Finance Company license in Nigeria? 

The process of acquiring a Finance Company license in Nigeria is commence by :- 

The Approval-In-Principle Stage 

– Submitting a written application prepared by your lawyer to the Central Bank of Nigeria accompanied by the following- 

a). a non-refundable application fee of 100 Thousand Naira; 

b). a deposit of the minimum capital requirement of 100 million Naira(refundable upon the grant of the Final license)with the Central Bank of Nigeria by the shareholders of the proposed Finance Company; 

c). documentary evidence of the payment of 100 Million Naira(refundable?) by the shareholders; 

d). a detailed Feasibility study/business plan of the proposed Finance Company(please consult your lawyer further on the required components of a business plan for this particular purpose); 

e). a copy of the draft MEMART (Memorandum &Articles of Association) of the proposed Finance company; 

f). a copy of a letter of intent to subscribe to the company share structure signed by each subscriber; 

g). a copy of the list of proposed shareholders in tabular form showing their busineses, residential addresses and the names/addresses of their bankers; 

h). a signed and dated Curriculum Vitae (CV) of each of the proposed directors of the proposed Finance company; 

i). a copy of the draft manual of operations such as the Enterprise Management Framework & Credit policy; 

Upon the submission, vetting and due consideration of the above, the CBN can then issue an Approval-In-Principle(AIP) after which the company can be incorporated at the Corporate Affairs Commission (CAC). 

The Final License Stage 

Upon incorporation/registration of the Finance Company at the Corporate Affairs Commission and before the commencement of business, the Finance company is required to submit the following requirements to the Central Bank of Nigeria :- 

– a Certified True Copy of the certificate of incorporation and other CAC forms of the Finance company; 

– a copy of the shareholder’s register in which the equity interest of each shareholder is properly reflected along with a copy of the share certificate issued to each shareholder; 

– a copy of the opening statement of affairs audited by an approved form of accountants practicing in Nigeria; 

– a letter of undertaking to comply with all the rules and regulations within the framework governing the operation of Finance companies; 

– a copy of the letters of offer & acceptance of employment by each management staff of the company and a written affirmation that the CBN-approved management team has been set up; 

– evidence of registration with the Nigerian Finance company association; 

– evidence of payment of a licensing fee of 250 thousand Naira; 

The receipt and vetting of the above will be followed by a physical inspection by the CBN of the premises of the Finance company and a final license grant upon the satisfaction of the CBN that all Regulatory requirements have been satisfied. 

Are Finance company licenses renewable? 

Yes , they are annually renewable. 

Conclusion :-  It is hoped that a basic clearer understanding of the Regulatory Framework governing the licensing and operation requirements for Finance companies in Nigeria has been achieved by this write-up, however it is imperative to seek further guidance from trained professionals if you are looking to set up and operate this type of business.