In Nigeria and across the world. access to finance has been quoted to be one of the most significant hindrances to MSME Development. In curbing this challenge, entrepreneurs and organizations are constantly coming up with new ways to ensure that this challenge is surmounted. In order to efficiently achieve their objectives, such organizations must comply with the laid down rules and regulations of the extant laws.
The Central Bank of Nigeria (CBN) provides regulatory oversight on financial institutions and finance services in Nigeria and provides laws, guidelines and policies to facilitate such organizations. The CBN regulates finance companies through its Revised Guidelines for Finance Companies in Nigeria (the “Guidelines”) issued in 2014.
Meaning of a Finance Company
A Finance Company unless otherwise stated, means a company licensed to carry on Finance Company business. Finance Company Business means the business of providing financial services to individual consumers and to industrial, commercial, or agricultural enterprises.
Permissible Activities of Finance Companies
Operators of a Finance Company shall be permitted to perform, amongst others, the following activities:
- Consumer Loans
- Funds Management
- Asset Finance
- Project Finance
- Local and International Trade Finance
- Debt Factoring
- Debt Securitization
- Debt Administration
- Financial Consultancy
- Loan Syndication
- Warehouse Receipt Finance
- Covered Bonds
- Issuing of vouchers, coupons, cards and token stamps,
Requirements for the Grant of A Finance License
The requirements for the grant of a finance license are in two (2) phases:
In order to operate a finance company in Nigeria, the company must obtain a finance company license from the Central Bank of Nigeria through an application in writing to the Governor of CBN. Such application shall be accompanied by:
- a non-refundable application fee of N100,000 (One Hundred Thousand Naira) payable to the CBN;
- a deposit of the minimum capital of N100,000,000 (One Hundred Million Naira) with the CBN;
- evidence of payment of the minimum capital of N100,000,000 (One Hundred Million Naira by the proposed shareholders;
- a detailed business plan/feasibility study;
- a copy of the draft memorandum and articles of association of the finance company;
- a copy of the letter of intent to subscribe to the company signed by each subscriber;
- a copy of the list of proposed shareholders in tabular form showing their businesses, residential addresses and the names and addresses of their bankers;
- a signed and dated curriculum vitae of the proposed directors of the finance company;
- a copy of the draft manual of operations such as the enterprise management framework, credit policy etc.
Upon incorporation at the CAC and prior to commencement of business, the finance company is required to submit the following documents to the CBN.
- A certified true copy of the certificate of incorporation and other incorporation documents of the finance company.
- A copy of the shareholders’ register in which the equity interest of each shareholder is properly reflected (together with the original for sighting) and a copy of the share certificate issued to each shareholder.
- A copy of the opening statement of affairs audited by an approved firm of accountants practicing in Nigeria.
- A copy of the letters of offer and acceptance of employment by each management staff and a written confirmation that the management team approved by the CBN has been put in place.
- A letter of undertaking to comply with all the rules and regulations guiding the operations of finance companies.
- Evidence of registration with the Finance Company’s association umbrella body.
- Evidence of payment of licensing fee of N250,000 (Two Hundred and Fifty Thousand Naira).
Upon receipt of the above, the CBN will conduct a physical inspection on the premises of the finance company and where it is satisfied that all requirements have been fulfilled, a finance company license may be issued.
More requirements are contained in the Revised Guidelines For Finance Companies in Nigeria (2014)
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