May 28, 2022

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Establishing A Finance Company In Nigeria – Finance and Banking


Nigeria:

Establishing A Finance Company In Nigeria


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Introduction

Micro, Small and Medium Enterprises (MSMEs) play a significant
role in the development of the economy of many countries. According
to the World Bank1, MSMEs represent about 90{de3fc13d4eb210e6ea91a63b91641ad51ecf4a1f1306988bf846a537e7024eeb} of
businesses worldwide. The growth of MSMEs in many countries,
however, is often stifled by limited access to finance, as
financial institutions are less likely to provide funding to MSMEs
due to the high-risk nature of their businesses.

In Nigeria, the finance company licence was established by the
Central Bank of Nigeria (“CBN”) to focus on meeting the
financial needs of MSMEs. The CBN regulates finance companies
through its Revised Guidelines for Finance Companies in Nigeria
(the “Guidelines”) issued in 2014.

In this article, we examine the procedure for acquiring a
finance company licence under the Guidelines.

What is a Finance Company?

A finance company is a company licensed by the CBN to provide
financial services to individual consumers, and industrial,
commercial or agricultural enterprises. These services include
providing 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 and
issuing vouchers, coupons, cards and token stamps.

It is important to note that finance companies in Nigeria are
required to operate on a “stand alone” basis. Therefore,
unlike other financial institutions, the Guidelines specifically
preclude finance companies from rendering services such as
deposit-taking, stockbroking,
foreign exchange transactions
and
non-financial activities including
trading, construction and project management.

What is the procedure for the acquisition of a Finance Company
Licence in Nigeria?

The procedure for the acquisition of a finance company licence
is in two stages as summarised below;

Stage 1

An application for the acquisition of a finance company licence
is made in writing to the CBN accompanied by the following
documents:

  1. a non-refundable application fee of N100,000 (One Hundred
    Thousand Naira) payable to the CBN;

  2. deposit of the minimum capital of N100,000,000 (One Hundred
    Million Naira) with the CBN;

  3. evidence of payment of the minimum capital of N100,000,000 (One
    Hundred Million Naira by the proposed shareholders;

  4. a detailed business plan/feasibility study;

  5. a copy of the draft memorandum and articles of association of
    the finance company;

  6. a copy of the letter of intent to subscribe to the company
    signed by each subscriber;

  7. a copy of the list of proposed shareholders in tabular form
    showing their businesses, residential addresses and the names and
    addresses of their bankers;

  8. a signed and dated curriculum vitae of the proposed directors
    of the finance company;

  9. a copy of the draft manual of operations such as the enterprise
    management framework, credit policy etc.

Upon submission of the above, the CBN may, where satisfied,
grant an Approval in Principle. It is only after the approval is
granted that the finance company can be incorporated at the
Corporate Affairs Commission (CAC).

Stage 2

Upon incorporation at the CAC and prior to commencement of
business, the finance company is required to submit the following
documents to the CBN.

  1. A certified true copy of the certificate of incorporation and
    other incorporation documents of the finance company.

  2. 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.

  3. A copy of the opening statement of affairs audited by an
    approved firm of accountants practising in Nigeria.

  4. 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.

  5. A letter of undertaking to comply with all the rules and
    regulations guiding the operations of finance companies.

  6. Evidence of registration with the Finance Company’s
    association umbrella body.

  7. 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 licence may be issued.

Conclusion

Companies interested in providing financial services to
individual consumers and MSMEs involved in agricultural, industrial
or commercial businesses on a large scale may obtain a finance
company licence provided that the services they seek to provide
conform with the provisions of the Guidelines.

Footnote

1.
https://www.worldbank.org/en/topic/smefinance

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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