On Its Efforts To Stimulate Lending To MSMEs,CBN Sets N10bn Minimum Requirement For Credit Guarantee Companies In Nigeria

In a bit to regulate the current flow of currency and induce lending capacity in the country,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 licencing fee of N1 million among other requirements for registration of an institution to function as a Credit Guarantee Company.

CBN announced these requirements on Monday on its website, and it was named a new guidelines for regulation and supervision of credit guarantee companies in Nigeria.

The Apex bank stated that, as part of its efforts to energize lending to micro, small and medium enterprises, facilitated the development of guidelines for the establishment and operation of credit guarantee companies in Nigeria.

According to the new guidelines, which was signed by CBN’s director, Financial Policy and Regulatory Department, Mr. Muhammad Hamisu Musa, stated on Prudential requirements,the 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.

Further stressed that,MSMEs 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 MSMEs 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 guidelines prescribe 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 guidelines 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.