The Central Bank of Nigeria (CBN) has declared that businesses must have a minimum share capital of N10 billion, a non-refundable application cost of N100,000, and a non-refundable license charge of N1 million to be registered to operate. Is There Such A Thing As A Credit Guarantee Company? (CGC).
The criteria were stated in new rules for the regulation and supervision of credit guarantee businesses in Nigeria, which were signed by Mohammed Hamisu Musa, Director of the CBN’s Department of Monetary Policy and Regulation.
The CBN has enabled the formulation of rules for the establishment and operation of credit guarantee businesses in Nigeria as part of its efforts to provide loans to micro, small, and medium enterprises.
According to the bank, the guarantee might cover up to 75% of the default amount, with the default status established using existing discriminatory rules.
It stated that in developing countries, micro, small, and medium firms have difficulty acquiring formal sector loans.
Sector gaps, intrinsic hurdles, information inequities, low profit margins, and other issues plague Nigeria’s MSMEs loan market.
MSMEs have restricted access to financing since they are deemed high-risk due to these concerns, and credit is generally offered on disadvantageous conditions.
Credit guarantee businesses are required to shift third-party credit risk to lenders by, among other things, absorbing a percentage of the lender’s losses on loans to Nigerian MSMEs in the case of failure.
In the event of default, CGC’s guarantee is a legal promise to release a portion of the agreed-upon borrower’s liabilities.
According to the new guidelines, CBN would issue credit guarantees for MSME loans from authorized PFIs, as well as payment of claims for liability default in accordance with the contract’s general terms and circumstances. Collaborate with PFI to recover guaranteed payments from defaulting borrowers after claims are paid; and provide PFI with underwriting consultancy services.
The Guidelines also outline how members of the board of directors are appointed, the size and structure of the board, corporate governance criteria, funding sources, and committee board procedures.
It stipulates that CGC will not publish its audited financial accounts until four months after the fiscal year ends, subject to CBN’s written clearance. Display succinct financial reports in a prominent location at each of its offices and branches in Nigeria, as well as on its website and in national daily newspapers published and transmitted in Nigeria.
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