The Central Bank of Nigeria (CBN) in exercise of the powers conferred on it by the Central Bank of Nigeria Act of 2007 as amended and the Banks and Other Financial Institutions Act of 2004 (BOFIA) issued the Revised Guidelines for Finance Companies in Nigeria 2014 to regulate the establishment, operations and other activities of Finance Companies in Nigeria.
The Central Bank of Nigeria Revised Guidelines for Finance Companies in Nigeria, 2014 (the “Guidelines”) addressed the issues identified in the 2002 Guidelines. It allowed a Finance Company to provide a wider range of services, which includes consumer loans, project finance, asset finance, loan syndication, debt securitization and covered bonds among other services. The current Guidelines was also extensively aimed at corporate governance and risk management within a Finance Company, whereas the 2002 Guidelines only made provision for internal control measures in the company.
Under Section 58 of the BOFIA, no person shall carry on other financial business in Nigeria, (other than insurance and stockbroking) except it is a company duly incorporated in Nigeria and holds a valid licence granted in accordance with the provisions of this Act. Section 59 additionally specifies that said licence must be applied for in writing, to the CBN accompanied with certain key documentation of the company.
Greystone Solicitors advises clients on the complicated administrative procedures associated with liaising with the CBN which reportedly is the main difficulty experienced by any institution operating a Finance Company or attempting to acquire a Finance Company license.
The Guidelines stipulate that the following corporate practices must be approved by CBN: requirement for increase in share capital, revaluation of fixed assets, filing of quarterly periodic returns to mention but a few. Where these frequent procedures have to pass through a large regulatory agency such as the CBN prior to its approval, it could cause the Finance Company to lose money and/or discourage business entities from establishing a Finance Company due to the undue delays in granting necessary approvals.