Wednesday , September 28 2022
CBN Prohibits Credit Guarantee Companies from Accepting Deposits

CBN Prohibits Credit Guarantee Companies from Accepting Deposits

The Central Bank of Nigeria (CBN) has barred Credit Guarantee Companies (CGCs) from accepting deposits among other things.

The apex bank disclosed this yesterday in its guidelines for regulation and supervision of CGCs in Nigeria.

According to CBN, 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.

The guidelines stated: “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.”

Read More: CBN’s Net Liquidity Injection Rises 110% to N770bn

On permissible activities it stated: “Credit Guarantee Companies 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 CBN noted 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.

On sanctions, the guidelines stated: “CBN shall impose one or more of the following sanctions where any of the provisions of this guidelines is contravened: Monetary penalties on the CGC, its directors, officers or employees; Prohibition from declaring or paying dividends, suspension of guarantee operations, capital expenditure, and/or debt issuance; suspension or removal from office of any director, officer or employee; disqualification of any director, officer or employee from holding any position or office in Credit Guarantee Companies; And revocation of license.”

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