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CBN raises finance companies’ capital requirement by 400%

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The Central Bank of Nigeria (CBN) has raised the capital requirement of finance companies by 400 percent from N20 million to N100 million.

This was contained in the revised guidelines for finance companies in Nigeria released on Wednesday by the CBN.

According to the apex bank, any company seeking a licence for a finance company business in Nigeria shall apply in writing to the governor of the CBN with a non-refundable application fee of N100,000 and deposit of the minimum capital of N100 million, among requirements.

The other financial requirements, which may be varied whenever the CBN considers them necessary are non-refundable licensing fee of N250,000, non-refundable annual licensing renewal fee of N20,000 (payable within the first quarter of each calendar year) and change of name fee of N20,000.

The guideline stated that the sources of funds of a finance company shall consist of the shareholders’ funds, borrowings from members of the public, inter-corporate borrowings, and borrowings from banks and other financial institutions, while the securities are commercial papers and debentures/ investment notes.

Finance companies can access SME funds subject to compliance with minimum prudential norms, as defined by the CBN.

Furthermore, they may assist clients access SME funds through vehicles such as the SME Credit Guarantee Scheme, MSME Development Fund and the Nigerian Incentive- Based Risk Sharing System for Agricultural Lending (NIRSAL) funds (for clients in the agric value-chain

In addition to the specific requirements defined for the SME funds, these funds may only be accessed for asset finance, working capital and export finance transactions.

The minimum capital/ risk weighted assets ratio for each finance company shall be 12.5%, and a finance company is expected to maintain a ratio of not more than 1:10 between its capital funds and net credits, the guideline stated.

According to the guideline the maximum loan by a finance company to any person or corporate organisation or maximum investment in any venture by a finance company shall be 20% of the finance company’s shareholders’ funds unimpaired by losses.

Article Credit: Businessdayonline

Updated 5 Years ago

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