CBN Bars Credit Guarantee Companies From Managing Pension Fund

The Central Bank of Nigeria has said that Credit Guarantee Companies will not manage pension funds or get involved in pension schemes.

The lender revealed this in its guideline for regulation and supervision of ‘Credit Guarantee Companies’ in the country.

Micro, Small and Medium Enterprises in the country have battled with accessing finance from Nigerian financial institutions over fears of default.

Credit markets for MSMEs in Nigeria are characterized by market imperfections, collateral constraints, information asymmetry, low profit margins, among others.

CBN said the CGCs are expected to 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.

The apex bank said they will “provide guarantee for risk assets; render advisory services for financial and business development; invest surplus funds in government securities; partake in other investments as may be approved by the CBN; provide technical assistance to lenders and borrowers on credit and business development; maintain and operate various types of accounts with banks in Nigeria.”

But they are not allowed to provide guarantee to entities outside Nigeria and acceptance of demand, savings and time deposits or any other deposits.

According to the CBN, they are not permitted to provide credit to customers as well as manage pension funds or schemes.

Other non permissible activities include, “Foreign exchange, commodity and equity trading; all forms of trading in derivatives and swaps; collection of third-party cheques and other instruments for clearing through correspondent banks; purchase, sale, dispose, acquire or lease any real estate for whatever purpose without prior written approval of the CBN and lease, rental, sale or purchase of assets with related parties and/or significant shareholders of the CGC without the prior written approval of the CBN.”

As part of the Approval-In-Principle (API) the promoters will provide, ” Evidence of deposit of the specified minimum paid-up capital requirement of N10,000,000,000.00 (Ten Billion Naira only) or any other amount that may be prescribed by the CBN into a designated account with the CBN.”

The CGCs will also pay a non-refundable application fee of N100,000 or an amount specified by the apex bank.

Apart from getting the API, the institutions are expected to pay a non-refundable licensing fee of N1m six months after the API.