1. What is a Finance Company?
Finance companies are companies licensed as sub-sector or middle tier players in the financial system to complement the roles of banks and meet the needs of micro, small and medium enterprises. A Finance Company Business means the business of providing financial services to individual consumers and to industrial, commercial, or agricultural enterprises.
Please note that every company desiring to be licensed as a Finance Company shall be on a “stand alone” basis and thus be strictly limited to solely engaging in Finance Company business as defined above.
In Nigeria, no proposed Finance Company shall incorporate/register its name with the Corporate Affairs Commission until a written approval (called Approval in Principle) has been communicated to the promoters by the Central Bank of Nigeria, a copy of which shall be presented to the Corporate Affairs Commission during application for incorporation.
However, from our experience, it is important for promoters of a Finance Company to have undertaken a Business Name Reservation at the Corporate Affairs Commission (Business Name Reservation is usually for 60 days) before applying to the Central Bank of Nigeria for licence.
2. What laws regulate Finance Companies in Nigeria?
The relevant laws include the Central Bank Act 2007, the Banks and Other Financial institutions Act 2004 (“BOFIA”), the Revised Guidelines for Finance Companies in Nigeria 2014, the Code of Corporate Governance for Finance Companies in Nigeria, 2019, the Money Laundering (Prohibition) Act 2011, and the Cybercrime (Prohibition, Prevention, Etc.) Act 2015.
3. What are the services a Finance Company is permitted to provide?
The scope of a Finance Company’s permissible services is provided in the Revised Guidelines for Finance Companies in Nigeria 2014 to include the following and any other business as the Central Bank of Nigeria may designate from time to time:
– Consumer loans;
– Funds management;
– Asset finance (Finance Lease and Hire Purchase);
– Project finance;
– Local and International Trade Finance (LPO Finance; Import & Export Finance);
– Debt Factoring;
– Debt Securitization;
– Debt Administration;
– Financial Consultancy;
– Loan Syndication;
– Warehouse Receipt Finance;
– Covered Bonds;
– Issuing Vouchers, Coupons, Cards and Token Stamps.
4. What are the prohibited or non-permissible business activities for a Finance Company?
A Finance Company shall not engage in the following business activities:
i. Deposit Taking;
ii. Non-financial activities such as trading, construction and project management;
iii. Other financial services such as stock broking, issuing house business, registrars services, etc.;
iv. Foreign Exchange transactions except through their correspondent banks/ authorised dealers.
Every company desiring to be licensed as a Finance Company shall be on a “stand alone” basis and thus be strictly limited to solely engaging in Finance Company business as defined above.
5. What are the Financial Requirements for Obtaining Licence as a Finance Company?
i. A non-refundable application fee of N100,000 (One hundred thousand naira only) in bank draft, payable to the Central Bank of Nigeria.
ii. Deposit of the minimum capital of N100 million (One hundred million naira only) in bank draft made payable to the Central Bank of Nigeria. (Please note that the capital thus deposited together with the accrued interest will be released to the promoters on the grant of the final licence).
iii. Non-refundable Licensing fee – N250,000
iv. Non-refundable Annual Licensing Renewal fee – (Payable within the first quarter of each calendar year) – N20,000
v. Change of Name fee – N20,000.
6. What is the Procedure for Obtaining Operational Licence as a Finance Company?
Any company seeking a licence for a Finance Company business in Nigeria must submit to the Central Bank the following requirements:
i. Application letter addressed to the Governor of the Central Bank of Nigeria;
ii. A non-refundable application fee of N100,000 (One hundred thousand naira only) in bank draft, payable to the Central Bank of Nigeria.
iii. Deposit of the minimum capital of N100 million (One hundred million naira only) in bank draft made payable to the Central Bank of Nigeria. (Please note that the capital thus deposited together with the accrued interest will be released to the promoters on the grant of the final licence).
iv. Satisfactory, verifiable and acceptable evidence of payment by the proposed shareholders of the minimum capital of N100 million.
v. Detailed business plan or feasibility study, which must set out details of the proposed Finance Company, including:
1. The objectives and aims of the proposed Finance Company.
2. The need for the services of the Finance Company.
3. The special services that the Finance Company intends to provide.
4. A five-year financial projection for the operation of the Finance Company, indicating its expected growth and profitability.
5. The branch expansion programme [if any] within the first five (5) years.
6. The proposed training programme for staff and management succession.
7. Details of the assumptions upon which the financial projection has been made.
8. The organizational structure of the Finance Company, setting out in detail, the functions and responsibilities of the top management team.
9. The conclusions based on the assumptions made in the feasibility report.
vi. A copy of the draft Memorandum and Articles of Association. The objectives of the Company as disclosed in its Memorandum and Articles of Association should agree with the services listed under the scope of permissible operations for Finance Companies.
vii. A letter of intent to subscribe to the Finance Company, signed by each subscriber.
viii. A copy of the list of proposed shareholders in tabular form, showing their business and residential addresses [not post-office addresses] and the names and addresses of their bankers.
ix. Names and curriculum vitae (CV) of each of the proposed members of the Board of directors including other directorships held. The CVs must be personally signed and dated by prospective directors.
x. The promoters would also be required to submit the names and curriculum vitae of the proposed management team.
xi. Thereafter, the Governor of the CBN may grant a licence to a Finance Company. The Bank may at any time vary or revoke any condition of a licence or impose additional conditions.
xii. Where a licence is granted subject to additional conditions, the Finance Company shall comply with those conditions to the satisfaction of the CBN within such period as the CBN may deem appropriate in the circumstances. Any Finance Company that fails to comply with such conditions shall be guilty of an offence under BOFIA, 1991 [as amended].
7. What is the lifespan of a Finance Company’s licence?
Licence to operate a Finance Company is for 1 year and shall be renewed within the first quarter of the anniversary and every first quarter of each subsequent year at a non- refundable fee to be stipulated by the Central Bank of Nigeria from time to time, subject to satisfactory operations of the Finance Company.
Failure to renew a licence may attract severe sanctions, including fines or revocation.
8. What are the Conditions Precedent to the Commencement of Operations as a Finance Company?
As mentioned above, upon the grant of the Approval in Principle by the Central Bank of Nigeria, the promoters of a Finance Company are expected to proceed to the Corporate Affairs Commission to incorporate the Finance Company.
Upon receiving the certificate of incorporation from the Corporate Affairs Commission, the promoters of a Finance Company are required to return to the Central Bank of Nigeria submit the following documents to the Central Bank of Nigeria before such Finance Company is permitted to commence operations:
1. A copy of the shareholders’ register in which the equity interest of each shareholder is properly reflected [together with the original for sighting].
2. A copy of the share certificate issued to each shareholder.
3. A certified true copy of Form C02 [Return of Allotments] filed with the Corporate Affairs Commission.
4. A certified true copy of Form C07 [Particulars of Directors], and written confirmation that the Board of Directors approved by the Central Bank of Nigeria has been installed.
5. A certified true copy of the Memorandum and Articles of Association filed with the Corporate Affairs Commission.
6. The opening statement of affairs audited by an approved firm of accountants practising in Nigeria.
7. A certified true copy of the certificate of incorporation of the company issued by the Corporate Affairs Commission [together with the original for sighting purposes only].
8. A copy each of the letters of offer and acceptance of employment by management staff and a written confirmation that the Management team approved by the Central Bank of Nigeria has been put in place and ready to work.
9. A letter of undertaking to comply with all the rules and regulations guiding the operations of Finance Companies.
10. Evidence of registration with the Finance Company’s association umbrella body.
11. The Finance Company shall inform the Central Bank of Nigeria of the location and address of its Head Office.
12. The Finance Company shall inform the Central Bank of Nigeria in writing of the date of commencement of business.
Please note that every Finance Company shall be informed in writing by the Central Bank of Nigeria the approval to commence business and when it may commence business after physical inspection of its premises by the Central Bank of Nigeria.
9. What Sources of Funds can Promoters of a Finance Company consider?
According to the Revised Guidelines for Finance Companies in Nigeria 2014, the sources of funds of a Finance Company shall consist of the following:
i. Shareholders’ Funds
ii. Borrowings:
1. Borrowings from members of the public
2. Inter-corporate borrowings
3. Borrowings from banks and other financial institutions
iii. Securities
1. Commercial papers
2. Debentures / investment notes
iv. SME Funds:
1. Finance Companies can access SME funds subject to compliance with minimum prudential norms, as defined by the CBN
2. Finance Companies 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 business)
10. What are the Periodic Returns and Filings required from a Finance Company?
A. Transaction-Based Reporting Obligations
Section 10(1) of the Ant-Money Laundering (Prohibition) Act 2011 provides that a Financial Institution or Designated Non-Financial Institution shall report to the Economic and Financial Crimes Commission (“EFCC”) in writing within 7 and 30 days respectively any single transaction, lodgment or transfer of funds in excess of-
(a) N5,000,000 or its equivalent, in the case of an individual; or
(b) N10, 000,000 or its equivalent, in the case of a body corporate.
Section 2(1) of the Act requires that any transfer to or from a foreign country of funds or securities by a person or body corporate including a Money Service Business of a sum exceeding US$10,000 or its equivalent shall be reported to the Central Bank of Nigeria, Securities and Exchange Commission or the Commission in writing within 7 days from the date of the transaction.
B. Periodic Returns (Quarterly)
In compliance with the provisions of section 58(2)(b) of BOFIA, a Finance Company is required to file quarterly returns to the Director of Other Financial Institutions Supervision Department (OFISD), Central Bank of Nigeria not later than the 14th day of the month immediately following the end of the quarter (i.e. on or before 14th of March, 14th of June, 14th of September and 14th of December every year). Where the 14th day falls on a weekend or public holiday, the returns must be filed on the next working day after the weekend or holiday.
The Managing Director/Chief Executive Officer and the Chief Accountant (or its equivalent) of the Finance Company shall sign and attach to every return made to the Central Bank of Nigeria a declaration of authenticity of its contents.
The quarterly returns which are required to be filed or submitted by every Finance Company are as follows:
i. Statement of Financial Position
ii. Schedule of Other Assets
iii. Schedule of Other Liabilities
iv. Statement of Profit or Loss
v. Schedule of Investments
vi. Schedule of balances held with banks
vii. Returns on Borrowings from other Finance Companies
viii. Returns on Borrowings from other financial institutions
ix. Returns on Borrowings from individuals and non-financial institutions
x. Returns on credits to other Finance Companies
xi. Returns on credits to other financial institutions
xii. Returns on credits to individuals/non-financial institutions
xiii. Returns on other credits
xiv. Returns on credits to affiliates
xv. Returns on non-performing credits
xvi. Returns on off-balance sheet engagements
xvii. Returns on non-performing other assets
xviii. Returns on credits, off-balance sheet engagements, assets and liabilities along the defined scope of services
xix. Other returns as may be specified by the Central Bank of Nigeria
C. Submission and publication of Audited Financial Statements (Yearly)
Every Finance Company is required to submit its audited financial statements and the abridged version of the accounts to the Director of OFISD, Central Bank of Nigeria for approval not later than four (4) months after the end of the company’s financial year.
The Report on the Accounts from the External Auditors should be forwarded to the Director, OFISD, Central Bank of Nigeria not later than three (3) months after the end of the accounting year.
After approval, the Finance Company shall publish the accounts in at least one national daily newspaper. Every published account shall disclose in detail the penalties paid as a result of the contravention of BOFIA and any policy guidelines in force during the year in question and the auditor’s report shall reflect such contraventions.
11. What are the penalties for default, late or inaccurate returns?
Please note that any Finance Company which fails to comply with or file any of the required returns, filings or publication will be liable to a fine. There may be a harsher penalty such as revocation of licence of the defaulting Finance Company.
i. For lateness in submitting a return/furnishing any information required, the penalty, shall be a fine of N5,000 for each day during which such failure occurs. Persistent failure/refusal to render returns in the prescribed form may be a ground for the revocation of a Finance Company’s licence.
ii. Where the Central Bank of Nigeria considers it necessary, it may appoint a firm of qualified accountants to prepare proper books of account or render accurate returns, as the case may be, for the Finance Company concerned and the cost of preparing the account or rendering the returns shall be borne by the Finance Company.
iii. If any Director or Officer of a Finance Company fails to take all reasonable steps to ensure that proper books of accounts are kept with respect to all transactions by the company at its Head Office and/or at its branches, the Central Bank of Nigeria may impose on him a fine not exceeding N20,000. If any default in this respect is caused by the wilful act of any Director or Officer of the Finance Company, the Central Bank of Nigeria may impose on him a fine not exceeding N100,000 or cause the removal of such Director or Officer in order to protect the integrity of the financial system. In addition, the Bank may impose on the Finance Company such other penalties as are deemed appropriate.
12. What is the timeline for completing the incorporation of a Finance Company and obtaining an operational licence?
From our experience, the entire process should be completed between 6 months and 8 months.
The timeline above may however be affected by a host of factors such as a global pandemic, the readiness of the promoters, whether they have presented the right documents with required signatures, whether the Central Bank of Nigeria has any reason to disqualify any of the proposed directors, whether there is any glitch with the online platform of the Corporate Affairs Commission and other sundry issues.
