The Central Bank of Nigeria (CBN) has announced the registration requirements of an institution as a minimum share capital of N10 billion, a non-refundable application fee of N100,000 and a non-refundable licencing fee of N1 million among others to function as a Credit Guarantee Company (CGC).
The apex bank announced the requirements in a new guideline for regulation and supervision of credit guarantee companies in Nigeria, which was signed by CBN’s director, Financial Policy and Regulatory Department, Muhammad Hamisu Musa.
As part of its efforts to stimulate lending to micro, small and medium enterprises, the CBN has facilitated the development of guidelines for the establishment and operation of credit guarantee companies in Nigeria.
The bank says guarantee may cover up to a maximum of 75 percent of the default amount, while the status of default will be determined in accordance with extant prudential guidelines.
It says Micro, Small and Medium Enterprises face difficulties accessing credit from the formal sector in developing countries.
In Nigeria, the credit markets for MSMEs is characterised 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 also 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.
It says, 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.