Credit Guarantee companies are institutions licensed by the Central Bank of Nigeria (CBN) with the primary objective of providing guarantees to banks and other lending financial institutions licensed by the CBN as well (otherwise known as “Participating FIs/Financial Institutions”) against the risk of default by credit facility obligors.
This article will be focused on the topics of :-
– The regulatory framework governing credit guarantee companies in Nigeria.
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– The permissible and non-permissible activities of licensed credit guarantee companies in Nigeria.
– Licensing/Registration requirements for credit guarantee companies in Nigeria.
What are the components of the regulatory framework governing credit guarantee companies in Nigeria?
The Central Bank of Nigeria is in charge of the licensing and operation of credit guarantee companies in Nigeria by virtue of the CBN Guidelines For the Regulation & Supervision of Credit Guarantee Companies 2022 made pursuant to the Central Bank of Nigeria Act 2007.
What are the permissible and non-permissible activities of credit guarantee companies?
Permissible Activities
– The provision of guarantees for risk assets of participating FIs.
– Renderings advisory services for financial and business development.
– Investing surplus funds in government securities.
– The maintenance and operation of various types of accounts with banks in Nigeria.
– Partaking in other investments as may be approved by the Central Bank of Nigeria.
Non-permissible Activities
– Trading in foreign exchange.
– Managing Pension funds or schemes.
– Trading in derivatives and swaps.
– Providing credit to customers.
– The provision of guarantees to entities outside Nigeria.
What are the registration/licensing requirements for a credit guarantee company in Nigeria?
Credit Guarantee company licensing in Nigeria is in 2 stages :-
– The Approval-in-Principle (AIP) stage.
– The Final Licensing stage.
The Approval-in-Principle stage
To commence the process for setting up a credit guarantee company, you are to send the following to the CBN :-
- A written application.
- Proof of an application fee of 100,000.00 Naira (non-refundable) payment to the CBN.
- Evidence of a deposit of the specified minimum paid-up capital requirement of 10 Billion Naira (refundable upon the license grant).
4.Evidence of capital contributions made by each shareholder.
- Evidence of name reservation with the Corporate Affairs Commission (CAC).
- A detailed business plan/feasibility report.
- A Certified True Copy CTC of a Certificate of Incorporation and a board resolution signifying an intention to invest in the proposed credit guarantee company where any of the investors or shareholders of the proposed credit guarantee company is a company.
The AIP stage takes a total of 90 days and the proposed credit guarantee company shall not incorporate its name with the CAC until an AIP has been obtained from the CBN.
The Final Licensing stage
Not later than 6 months after the after the AIP grant, the promoters of a proposed credit guarantee company shall submit an application for the grant of a final license to the CBN along with the following:-
– Evidence of payment of a non-refundable 1 Million Naira licensing fee to the CBN.
– A Certified True Copy (CTC) of the credit guarantee company’s Certificate of Incorporation.
– Certified True Copies(CTCs) of the credit guarantee company’s MEMART Memorandum/ Articles of Association and the CAC Form 1.
– Stamp Duty payment evidence.
– Evidence of head office location.
– A schedule of changes in the board of directors and schedule of charges in the company after an AIP grant if any.
– The conduct of a Pre-licensing inspection of the credit guarantee company’s office by the CBN.