The Central Bank of Nigeria has put in place credit guarantee schemes to promote lending to MSMEs and remove barriers to their growth.
Credit Guarantee Companies (CGCs) are supposed to provide lenders with third party credit risk mitigation by absorbing a percentage of the lender’s losses on loans made to Nigerian Micro, Small and Medium Enterprises (MSMEs) in the event of default.
A CGC guarantee represents a legal commitment to discharge an agreed portion of a borrower’s liability in the event of default.
Interested parties who can negotiate Nigeria’s lending system may find the new program profitable, especially given the size of the country’s informal sector, which includes MSMEs. But, before we go any further, let’s review the do’s and don’ts of a CGC.
Dos and Don’ts of Credit Guarantee Companies
According to the guidelines, the CGC may do the following: A CGC may provide security for the risk assets of participating financial institutions; Provide consulting services for financial and business development; Invest excess funds in government securities; Participate in other investments that may be approved by the CBN; Provide technical assistance to lenders and borrowers on credit and business development; Maintain and operate various types of accounts with banks in Nigeria; and Other activities as may be prescribed by the CBN from time to time. »
The permeable action of credit guarantee companies provides interested parties with access and incentives that help the CBN achieve its goal of pushing finance to MSMEs.
The CBN, however, has stipulated various unauthorized acts of credit guarantee companies, such as accepting deposits and guarantees from companies outside Nigeria, in order to maintain focus on Nigeria and in accordance with the primary objective.
The CBN has listed the unauthorized actions of credit guarantee companies as follows, “Provision of guarantee to entities outside Nigeria; Provision of guarantee to entities within its holding company structure and related entities; Guarantee the loans of any institution to which it is liable; Acceptance of demand, savings and term deposits or any other deposit; provision of credit to customers; And the management of funds or pension plans.
How to register
- Proponents of a CGC will be required to file an official application for a CGC license with the Governor of the CBN.
- The CGC license application will be processed in two stages: preliminary approval and final approval.
- The following are the financial terms that the CBN can change to interested parties: N10,000,000,000 (ten billion naira) is the minimum share capital; N100,000 (one hundred thousand naira) is the non-refundable application fee; N1,000,000 (One Million Naira) is the non-refundable license fee; and N50,000 is the name change fee (fifty thousand naira).
First Stage Approval in Principle (AIP)
Any developer seeking a license to operate a CGC in Nigeria must submit a written application to the Governor of the CBN, along with the necessary documents. The document would include capital requirements, proofs of deposit and other relevant documents that the CBN guideline would go into detail.
Nairametrics has compiled a list of quick takeaways from the first step of the rigorous process, including: Non-refundable application fee of N100,000 (one hundred thousand naira) by bank transfer payable to CBN or CGC application and license account , or such other amount as the CBN may decide;
- Evidence of deposit in the CGC FPRD share capital account of the required minimum capital requirement of N10,000,000,000.00 (ten billion naira only) or any other amount prescribed by the CBN. The CBN would refund cash deposited to developers, along with investment profits, after deducting administrative costs and income tax, whether or not the license is granted.
- Source(s) of funding for the proposed capital contribution for each shareholder.
- Where the source of funding for the equity contribution is a loan, it must be a long-term facility with a tenor of at least 7 years and must not be drawn from the Nigerian banking system;
- Board and board committee charters outlining the roles and responsibilities of the board and sub-committees;
- National Identity Number (NIN), Bank Verification Number (BVN) and Tax Clearance Certificate (TCC) of each proposed director and significant shareholders and valid means of identification;
- Financial projections for the projected CGC for the next five years, including expected growth, profitability and assumptions;
- Additional documents for corporate investors include: certificate of incorporation and certified copies of other incorporation documents; Board resolution supporting the company’s decision to invest in the shares of the proposed CGC; Names and addresses (business and residential) of owners, directors and their related companies, if any; and Audited financial statements and reports of the company and TCC for the last three years.
We urge you to read the disclosed CBN Directive on Credit Guarantee Schemes for complete information on other required documents.
Stage Two Final License
Requirements for final licensing:
- Proponents of a CGC project must submit an application to the CBN for the granting of a definitive license no later than six (6) months after receiving the AIP.
- The application must be accompanied by the following: Non-refundable license fee of N1,000,000.00 (one million naira) only, or the amount prescribed by the CBN, in the form of bank draft payable to the application and license account of CBN or CGC; Submission of a Certified True Copy (CTC) of the GSC Certificate of Incorporation; MEMART CTC; CTC of the CAC 1.1 form (application for company registration); Proof of payment of stamp duty; Proof of location of the registered office (leased or owned) for the start-up of the business;
- Promoters must also inform the CBN of any changes to the board of directors or shareholding after the granting of the AIP. Evidence of the CCG’s ability to meet technical needs and provide current infrastructure facilities such as office equipment, computers and telecommunications in order to carry out its operations and respond to CBN and D other regulatory criteria;
- Copies of job offer and acceptance letters for the management team should also be submitted. Detailed CVs of senior management employees detailing qualifications (containing photocopies of academic and professional degrees), experience and achievements, as well as their BVN, TCC for the previous three years, and valid ID; a sworn statement of net worth signed by the general management; and a completed Aptitude and Propriety Questionnaire
- The apex bank is also interested in the internal control policy; business continuity plan; Complete plan on the start of GCC operations with milestones and timelines; and board and staff training program.
How to start
- At this point, you should have fully received your business license.
- The CCG must, by letter, inform the CBN that it is ready to begin operations and this information must be accompanied by a copy of each of the following documents:
- Register of shareholders; Copy of the share certificate issued to each investor; Opening balance sheet signed by at least two directors and auditors; Enterprise Risk Management Framework (ERMF); internal control policy; and Minutes of the pre-opening board meeting.
- Once the apex bank is satisfied, you can start your new business and support the main objective of CBN.