Key Considerations in Setting up Finance & Fund Management Companies in Nigeria
A market entry decision by entrepreneurs on the suitable corporate structure for their proposed business venture is not always an easy exercise especially in Nigeria where the regulatory framework for doing business is not quite straightforward. This much is clear to us in the course of assisting local and foreign clients in setting up lending and investment companies in Nigeria.
Naturally, the scope of permissible business activities, the financial and documentary requirements for operational licence, board and management qualifications, timeline for completing the set up process and other market entry issues are amongst key considerations that would usually weigh on the minds of business promoters and upon which professional guidance is highly recommended.
Please find below our previous publications on the requirements, costs and timelines for obtaining licences for a Finance Company and Fund/Portfolio Management Company:
See: HOW TO OBTAIN A FINANCE COMPANY LICENCE IN NIGERIA
See also: REQUIREMENTS FOR REGISTRATION AS FUND/PORTFOLIO MANAGERS IN NIGERIA
In Nigeria, Finance Companies and Fund/Portfolio Management Companies have several common restrictions in terms of their permissible business activities. Both are non-deposit taking institutions though Finance Companies may take indirect deposits through borrowings/loans from public members. Both are licensed and regulated by separate agencies: Finance Companies are licensed by the Central Bank of Nigeria (CBN) whilst Fund/Portfolio Management companies are licensed by the Securities and Exchange Commission (SEC).
A Finance Company is required to be incorporated by the Corporate Affairs Commission (“CAC”) with a N100 Million share capital and the promoters are required to deposit the sum of N100 Million with the CBN pending the grant of the finance licence. A Fund/Portfolio Company, however, must be registered with a N150 Million share capital and the promoters must show proof of financial capacity up to the share capital value through its bank balances, fixed assets or investment quoted securities, which altogether must be worth N150,000,000 (One Hundred and Fifty Million Naira) subject of course to the condition that the cash assets ratio shall be 60% liquid assets and 40% fixed and other assets.
In Nigeria, a Finance Company cannot be fully registered with the CAC unless after obtaining the Approval-In-Principle of the CBN, a copy of which the CAC will demand for completion of the incorporation of a Finance Company. However, a Fund/Portfolio Company can be fully registered with CAC before preparing application for licence to SEC. The foregoing means that a Fund/Portfolio Management Company’s incorporation can be fully completed even if the promoters do not have all the licensing requirements. With regard to Finance Company, however, both the incorporation and licensing of the company are done simultaneously.
The documentary requirements for Finance Companies and Fund/Portfolio Management Companies are fundamentally similar with few peculiarities. The timelines for completion are also similar even though they are licensed by separate federal agencies. It is noteworthy to mention that the registration of a Finance Company with the Finance Houses Association of Nigeria is a prerequisite for CBN licence. However, the SEC has not mandated the registration of a Fund/Portfolio Management Company as a condition for its licence.
A Fund/Portfolio Management Company is required to present three (3) Sponsored Individuals (who must include the Managing Director, Compliance Officer and another top management staff) who must have demonstrable experience in capital market operations and must pass SEC examinations set to test their knowledge. However, a Finance Company requires a board of directors that is constituted by a minimum of five (5) or a maximum of nine (9) directors, with more than fifty percent of the board of directors comprising of non-executive directors.
Apart from doing business with its shareholders’ funds, a Fund/Portfolio Management Company is allowed by SEC to invite the public to make an investment for a return on the investment (“ROI”) and to undertake the management of any collective investment schemes (“CIS”) or investment portfolios on behalf of clients or retail investors (including stocks, bonds, etc.). Fund/Portfolio Management Companies are regulated by SEC to avoid unfortunate situations like the recently reported cases of massive fraud by unlicensed investment companies, leading to loss of over N300 Billions by victims, some of whom have lost their life savings or lives as a result of suicide.
By virtue of the CBN’s Revised Guidelines for Finance Companies in Nigeria 2014, the sources of funds of a Finance Company consist of shareholders’ funds, loans (i.e. borrowings from members of the public, inter-corporate borrowings and borrowings from banks and other financial institutions), securities (i.e. commercial papers and debentures/investment notes), SME Funds for asset finance, working capital and export finance transactions as well as foreign funding arrangement subject to CBN approval.
Both Finance Companies and Fund/Portfolio Management Companies are required to be operated as a stand-alone business dealing in only their respective permissible business activities by separate corporate entities to avoid commingling. Both companies are allowed to have a head office and branch offices across Nigeria subject to regulatory approval of either the CBN or the SEC, as the case may be.
It is important to mention that the licence fee for a Fund/Portfolio Management Company in Nigeria is now N10 Million whilst the licensing fee for a Finance Company still remains at N250,000 even though an upward review of the licence fee by the CBN appears very imminent. Other costs and conditions may apply.
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About KORIAT & CO.
We are a commercial law firm in Lagos, Nigeria with a network of lawyers in Ghana, Kenya and Rwanda where we assist in company registration and processing business licence.
The above article is not legal advice and does not automatically make our readers our clients unless they specifically instruct us to act or represent them in any way.
Please contact Koriat & Co. through admin@koriatlaw.com or 09067842241 if you require additional information about or assistance in making the application for a money lender’s licence.
Read More About HOW TO OBTAIN A FINANCE COMPANY LICENCE IN NIGERIA
Please Read also: REQUIREMENTS FOR REGISTRATION AS FUND/PORTFOLIO MANAGERS IN NIGERIA
