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.

– 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 :-

1. A written application.

2. Proof of an application fee of 100,000.00 Naira (non-refundable) payment to the CBN.

3. 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.

5. Evidence of name reservation with the Corporate Affairs Commission (CAC).

6. A detailed business plan/feasibility report.

7. 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.

As criticism continues to trail the decision of the Central Bank of Nigeria (CBN) to limit the amount of money that can be withdrawn over the bank counter and on ATMs to N100,000 per week for individuals and N500,000 for corporations, human rights lawyer, Femi Falana, has weighed in on the issue.

The Senior Advocate of Nigeria (SAN) said the new withdrawal policy contradicts the law and therefore is illegal.

On December 6, the CBN announced the new policy, which also allows only N20,000 withdrawal from POS per day, as part of its broader monetary policy – directing financial institutions to start the implementation from Jan. 9, 2023.

The new policy was announced on the heels of the redesign of N200, N500 and N1,000 notes that the apex bank rescheduled their circulation to take effect from November 23.

Both moves by the central bank have elicited both commendation and condemnation. While a section of Nigerians applaud the new CBN initiatives as possible means to curb insecurity and inflation, others, including Falana have said that the new withdrawal limit contravenes the law.

In a statement on Monday, Falana described the policy as “illegal and null” as it contravenes provisions of section 2 of the money laundering Act, 2022. He argued that section 2 of the Act, limits cash withdrawals by individuals and corporate entities to N5 million and N10 million, respectively.

According to him, the new CBN policy is “null and void” as long as section 2 of the money laundering Act is not amended to accommodate it.

“Since the money laundering act, 2022 (which has fixed maximum cash withdrawal to N5 million) has not been amended, the limitation of cash withdrawal of not more than N20,000 per day and N100,000 per week fixed by the Central Bank of Nigeria is illegal, null and void in every material,” Falana said.

“We urge the Nigerian people to ignore the illegal announcement.

“However, we are compelled to call on President Muhammadu Buhari to direct the management of the CBN to withdraw the illegal guideline and stop announcing more policies that are designed to sentence poor citizens to more excruciating economic hardship,” he added.

Meanwhile, the CBN governor Godwin Emefiele had said he has the backing of Buhari to implement the controversial policies.

Last week, the House of Representatives summoned the governor as concern grows that the new withdrawal limit may create economic headwinds for Small and Medium Enterprises (SMEs) in the country, particularly those in the rural areas.

However, Emefiele assured that the central bank has put adequate amenities in place to ensure that the concerns are addressed.