The Central Bank of Nigeria (CBN) has barred Credit Guarantee Companies (CGCs) from accepting deposits in the country.
This was contained in its guidelines for regulation and supervision of CGCs in Nigeria.
The apex bank explained that its efforts to stimulate lending to Micro, Small and Medium Enterprises (MSMEs) facilitated the development of guidelines for the establishment and operation of CGCs in Nigeria.
According to the guidelines: “On non-permissible activities, a CGC shall not carry out the following: Provision of guarantee to entities outside Nigeria; Provision of guarantee to entities within its holding company structure and to connected entities; guarantee loans of any institution it is indebted to; acceptance of demand, savings and time deposits or any other deposits; provision of credit to customers; and management of pension funds or schemes.”
On permissible activities it stated: “A CGC may provide guarantee for risk assets of participating financial institutions; 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; and Other activities as may be prescribed by the CBN from time to time.”
The bank disclosed that the objectives of the credit guarantee scheme include to improve access to credit for MSMEs; reduce credit risk in lending by providing guarantees to Participating Financial Institutions (PFIs); stimulate lower interest rates on loans; promote flexible collateral requirements by PFIs.
Others are to encourage new business formation, development and expansion; accelerate economic growth and decrease unemployment; foster sustainable and inclusive growth, and improve risk management in the financial system.
