CBN Sets N10bn Capital Base for Credit Guarantee Companies

The Central Bank of Nigeria yesterday pegged at N10 billion the minimum paid-up capital for the establishment of the proposed Credit Guarantee Companies in the country. This was contained in a circular by the CBN titled, “Exposure Draft of Guidelines for Regulation and Supervision of Credit Guarantee Companies in Nigeria,” dated August 4, 2021, and addressed to banks, other financial institutions and stakeholders.

In addition to the minimum capital base, a CGC is also required to pay a non-refundable application fee of N100, 000, non-refundable licencing fee of N1 million, and change of name fee of N50, 000. According to the apex bank, the proposed credit risks guarantee firms 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.

While the provisions of the guidelines shall apply to CGCs licenced by the CBN, the PFIs shall comply with same provisions as it relates to their activities, the CBN added. The CBN also stated that the cumulative guarantee liabilities of a CGC shall not exceed 10 times of its shareholders’ fund unimpaired by losses. It stressed that the CGCs shall commence operations with, and maintain at all times, a minimum paid-up capital of N10 billion or such amount as may be prescribed by the CBN from time to time.

However, CBN, among other things, barred the CGCs from provision of guarantee to MSMEs based outside Nigeria. The bank also forbade them from accepting demand, savings and time deposits or any other deposits, including provision of credit to customers.

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