The Central Bank of Nigeria (CBN) has announced a minimum share capital of N10 billion, a non-refundable application fee of N100,000 and a non-refundable licensing fee of N1 million among other requirements for registration of an institution to function as a Credit Guarantee Company.
The apex bank announced the requirements in a new guideline for regulation and supervision of credit guarantee companies in Nigeria released on the website of the bank yesterday.
This is as currency in circulation in Nigeria fell to N3.25 trillion in February, 2022 compared to N3.29 trillion recorded as of January 2022.
The guideline was signed by CBN’s director, financial policy and regulatory department, Muhammad Hamisu Musa.
The CBN, as part of its efforts to stimulate lending to micro, small and medium enterprises, facilitated the development of guidelines for the establishment and operation of credit guarantee companies in Nigeria.
On prudential requirements, the bank said guarantee may cover up to a maximum of 75 per cent of the default amount, while the status of default will be determined in accordance with extant prudential guidelines.
MSMEs face difficulties accessing credit from the formal sector in developing countries. In Nigeria, the credit markets for MSMEs is characterized by market imperfections, collateral constraints, information asymmetry, low profit margins, among others. The factors have limited MSMEs’ access to credit due to their perceived high risk and where credit is granted, it is often on unfavorable terms.
The Credit Guarantee Companies are expected to among other responsibilities, provide third-party credit risk mitigation to lenders through the absorption of a portion of the lender’s losses on the loans made to Nigeria-based MSMEs in case of default. A guarantee issued by a CGC represents a legal commitment to discharge an agreed portion of the liability of a borrower in the case of default
Under the new guideline, the CBN said the CGCs would provide credit guarantees for MSME loans from eligible PFIs; pay claims on default by obligors in line with the contract terms and the general provisions of the Guidelines; collaborate with PFI to recover the guaranteed sum from defaulting borrowers post claims payment; and provide advisory support to PFIs on guarantee matters.
The guideline prescribes modes for the appointment of members of the board of directors, composition and size of the board, corporate governance requirements, sources of funds and board of committees.
The guideline said subject to the prior approval in writing of the CBN, a CGC will not later than four months after the end of its financial year, publish its audited financial statements on its website and in a national daily newspaper printed and circulating in Nigeria; and display the abridged financial statement in a conspicuous position in each of its offices and branches in Nigeria.
Meanwhile, the decline in money in circulation represents a 1.2 per cent decline on a month-on-month basis. When compared to the corresponding period of 2021, it increased by 16.95 per cent compared to N2.78 trillion as of February 2021.
Currency outside the banks as of February 2022 was N2.73 trillion, which is 1.7 per cent lower than the N2.78 trillion as of the previous month, representing a decline of N47.53 billion.
Credit by banks to the private sector increased by N1.46 trillion in February to N36.91 trillion from N35.45 trillion recorded as of the previous month. This represents an increase 4.1 per cent month-on-month.
Also banks’ credit to government also increased by 4.5 per cent in February 2022, improving from N14.28 trillion recorded as of January 2022 to N14.92 trillion.
The growth in credit to both private and government parastatal could be attributed to the Central Bank’s policies to stimulate the economy. Also, innovation in technology and the surge in the number of FinTechs in the lending space has brought more competition to the lending space
