CENTRAL BANK OF NIGERIA

REVISED GUIDELINES FOR

FINANCE COMPANIES IN NIGERIA

APRIL 2014
 Central Bank of Nigeria
Revised Guidelines for Finance Companies in Nigeria

Glossary of Terms

Acronym Definition
ALM Asset and Liability Management

BA Banker’s Acceptance

BOFIA Banks and Other Financial Institutions Act

CAC Corporate Affairs Commission

CBN Central Bank of Nigeria

CEO Chief Executive Officer

CP Commercial Paper

CRAR Capital to Risk Assets Ratio

CV Curriculum Vitae

ELAN Equipment Leasing Association of Nigeria

FC Finance Company

FSI Financial Services Industry

FHAN Finance Houses Association of Nigeria

KYC Know Your Customer

LPO Local Purchase Order

MSME Micro, Small and Medium Enterprises

NPL Non-Performing Loans

OFISD Other Financial Institutions Supervision Department

SHF Shareholders’ Funds

SME Small and Medium Enterprises

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Revised Guidelines for Finance Companies in Nigeria

Contents

1 Introduction 1

2 Scope of Permissible Operations for Finance Companies 2

2.1 Regulation of Leasing Business in Nigeria 4

3 Licensing Requirements 6
3.1 Requirements for the grant of licence 6
3.2 Other financial requirements 8
3.3 Conditions Precedent to the Commencement of Operations 8

4 Sources of Funds 10

5 Rendition of Returns 11
5.1 Periodic Returns (Quarterly/ Bi-annual) 11
5.2 Submission and publication of Audited Financial Statements 12
5.3 Penalties for late or false/ inaccurate returns or other information 12

6 Prudential Requirements 14
6.1 Capital Funds Adequacy 14
6.2 Maintenance of capital funds 14
6.3 Payment of dividend 14
6.4 Limit of lending to a single borrower 15
6.5 Borrowing limits 15
6.6 Provision for classified assets 15
6.7 Ratio of non-performing loans to total gross loans 15
6.8 Contingent items 15
6.9 Limit of investment in fixed assets 16
6.10 Revaluation of fixed assets 16
6.11 Requirements for increase in share capital 16

7 Risk Management 18
7.1 Enterprise Risk Management 18
7.2 Internal Controls 18
7.3 Basic Information on Borrowers 19
7.4 Disclosure of interest by Directors and Officers of Finance
Companies 19

8 Supervision and Compliance 20

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9 Corporate Governance 21
9.1 Compliance with the provisions of the Code of Corporate
Governance and the Approved Persons Regime 21
9.2 Structure of the Board of Directors of Finance Companies 21
9.3 Management requirements 22
9.4 Appointment or replacement of Principal Officers 23

10 Other Regulatory Requirements 24

10.1 Opening/ closing of branches of Finance Companies 24
10.2 Restructuring and Reorganization of Finance Companies 24
10.3 Schemes of Arrangement 24
10.4 Display of Licence 24
10.5 Display of Interest Rates 25
10.6 Conditions for revocation of Licence 25
10.7 Know Your Customer (KYC) and Anti-Money Laundering
Measures 25
10.8 Other prohibitions 26
10.9 Competition, consumer protection and operational rules 26

11 Industry Support Initiatives 27

11.1 Access to SME Funds 27
11.2 Capacity Building Programmes 27

12 Transitional Provisions 28

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 Central Bank of Nigeria
Revised Guidelines for Finance Companies in Nigeria

1 Introduction

The Finance Company sub-sector was envisioned to operate within the middle tier of
the financial system, with a focus on the Micro, Small and Medium Enterprises
(MSMEs) segment. The sub-sector was to play complementary roles to banks,
bridging financing gaps and meeting the financial needs of its target customers.
However, Finance Companies have not demonstrated the necessary capability to
thrive in this space which has resulted in a largely underperforming sub-sector - a
situation of concern to the Central Bank of Nigeria [hereinafter referred to as “the
CBN” or “the Bank”] and other key industry stakeholders.

As part of the initiatives to establish financial stability within the Financial Services
Industry and the Finance Company sub-sector in particular, the CBN undertook a
review of the Guidelines for Finance Companies. These Revised Guidelines are
issued by the CBN in exercise of the powers conferred on it by the Central Bank of
Nigeria Act of 2007 [hereinafter referred to as “the CBN Act”] and the Banks and
Other Financial Institutions Act of 2004 [hereinafter referred to Act “the BOFIA”]. The
Revised Guidelines are to regulate the establishment, operations and other activities
of Finance Companies.

The Revised Guidelines replace the existing Guidelines for Finance Companies and
should be read in conjunction with the provisions of the CBN Act, the BOFIA, as well
as written directives, notices, circulars and guidelines that the CBN may issue from
time to time.

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2 Scope of Permissible Activities for Finance Companies

A Finance Company unless otherwise stated, means a company licensed to carry on

Finance Company business. Finance Company Business means the business of
providing financial services to individual consumers and to industrial, commercial, or
agricultural enterprises.

Operators of a Finance Company shall be permitted to perform, amongst others, the

following activities:

Permissible Services Description

 Consumer Loans  This includes the provision of consumer and

business loans to individuals and the Micro,
Small and Medium Enterprises (MSMEs).

 Funds Management  This entails the management of funds on behalf

of customers/ clients based on agreed tenor and
rate.

 Asset Finance  Finance lease is a lease agreement with the

option of purchase by the lessee at the end of
- Finance Lease
the lease period.
- Hire Purchase
 Hire purchase involves the acquisition of goods
through instalment payments over a given time
frame.

 Project Finance  The financing of infrastructure/ industrial projects

via a loan structure that relies primarily on the
project's cash flow for repayment.

 This covers the provision of finance for such

projects promoted by small scale ventures,
public/ private partnerships and concessions.

 Local and International  Local trade finance/ supply finance provides

Trade Finance contractors and vendors with the financial
support to execute local purchase orders (LPOs)
- LPO Finance
and work orders for their client companies.
- Import and Export Finance
 International trade finance is designed to
facilitate the export and import of goods.

 Debt Factoring  The business of purchasing debts/ receivables

from clients at a discount and making a profit
from their collection.

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Permissible Services Description

 Debt Securitization  A process by which identified pools of

contractual debt/ receivables are transformed
into marketable securities e.g. bonds through
suitable repackaging of cash-flows that they
generate.

 Debt Administration  Provision of debt/ loan restructuring services to

clients facing cash flow problems. This involves
the alteration of the terms of the debt agreement
to restore liquidity to the client’s business.

 Financial Consultancy  Financial consultancy involves offering financial

advisory services to clients for a fee and/or
commission.

 Loan Syndication  A practice in which a Finance Company in

conjunction with other finance companies and/or
other financial institutions each lend a specified
amount of money to a borrower at the same time
and for the same purpose. The entities
participating in the loan syndication cooperate
with each other for the duration of the project, as
individual FCs may not be able to afford the
huge funds involved.

 Warehouse Receipt Finance  This involves a guarantee that a seller will

deliver specified quantity and quality of a
commodity to a certain warehouse for storage.

 Covered Bonds  Covered Bonds are similar in many ways to

asset-backed securities created in securitization,
but covered bond assets remain on the issuer’s
consolidated balance sheet.

 Issuing of vouchers,  This covers services related to payments

coupons, cards and token system.
stamps

The scope of services for Finance Companies will include these and other
businesses as the CBN may, from time to time, designate.

Non-Permissible Activities

Finance Companies shall not be permitted to carry out the following business
activities:

i. Deposit Taking;
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ii. Non-financial activities such as trading, construction and project management;

iii. Other financial services such as stock broking, issuing house business,
registrars services, e.t.c;

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.

2.1 Regulation of Leasing Business in Nigeria

i. A leasing company is defined as any company or financial institution carrying
on, as its principal business, the financing of physical assets supporting
productive/ economic activity.
a. “Leasing” means the business of letting or sub- letting movable property on
hire for the purpose of the use of such property by the hirer or any other
person in any business whatsoever and where the lessor is the owner of the
property regardless of whether the letting is with or without an option to
purchase the property (Banks and Other Financial Institutions Act of 2004).
b. Finance lease is a lease involving rental payment over an obligatory period
sufficient in total to amortise the capital outlay of the equipment and also
give the lessor some benefits. The lessee also has the option of purchasing
the leased equipment at the expiration of the lease agreement.

ii. CBN shall regulate the operations of Finance Companies that render finance
and operating lease services to their clients in as much as the finance lease
operations could be separated from the operating lease engagement but CBN
will not regulate the operations of financial or corporate institutions which
render only operating lease services.

iii. Leasing companies outside the financial system that engage in finance lease
shall be expected to apply for Finance Company licence and be subjected to
the prudential/ regulatory requirements for Finance Companies as defined by
the CBN.

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iv. A Leasing Company with a valid Finance Company licence shall not be
precluded from offering other permissible services defined under the scope of
operations for Finance Companies.

v. Self Regulatory Organisations such as the Finance Houses Association of

Nigeria (FHAN) and the Equipment Leasing Association of Nigeria (ELAN) shall
collaborate with the CBN to identify companies to be licensed and supervised.

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3 Licensing Requirements

3.1 Requirements for the grant of licence

Any company seeking a licence for a Finance Company business in Nigeria shall
apply in writing to the Governor of the Central Bank of Nigeria. Such application shall
be accompanied by the following:

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. The capital thus
deposited together with the accrued interest will be released to the promoters
on the grant of the final licence.

iii. Satisfactory, verifiable and acceptable evidence of payment by the proposed

shareholders of the minimum capital of N100 million.

iv. Detailed business plan or feasibility study, including:

a. The objectives and aims of the proposed Finance Company.
b. The need for the services of the Finance Company.
c. The special services that the Finance Company intends to provide.
d. A five-year financial projection for the operation of the Finance Company,
indicating its expected growth and profitability.
e. The branch expansion programme [if any] within the first five (5) years.
f. The proposed training programme for staff and management succession.
g. Details of the assumptions upon which the financial projection has been
made.
h. The organizational structure of the Finance Company, setting out in detail,
the functions and responsibilities of the top management team.
i. The conclusions based on the assumptions made in the feasibility report.

v. 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.

vi. A letter of intent to subscribe to the Finance Company, signed by each

subscriber.
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vii. 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.

viii. 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. The promoters would also be required to submit
the names and curriculum vitae of the proposed management team.

ix. 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.

x. 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].

xi. No proposed Finance Company shall incorporate/register its name with the
Corporate Affairs Commission until a written approval has been communicated
to the promoters by the CBN, a copy of which shall be presented to the
Corporate Affairs Commission.

xii. Licences shall be renewed within the first quarter of each year at a non-
refundable fee to be stipulated by the Bank from time to time, subject to the
operations of the Finance Company being satisfactory to the Bank. Failure to
renew a licence would attract severe sanctions, including revocation.

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3.2 Other financial requirements

The other financial requirements, which may be varied whenever the Central Bank of
Nigeria considers them necessary, are as follows:

i. Non-refundable Licensing fee - N250,000

ii. Non-refundable Annual Licensing Renewal fee - N20,000

(Payable within the first quarter of each calendar year)

iii. Change of Name fee - N20,000

3.3 Conditions Precedent to the Commencement of Operations

i. The promoters of a Finance Company shall submit the following documents to
the Central Bank of Nigeria before such Finance Company is permitted to
commence operations:
a. A copy of the shareholders’ register in which the equity interest of each
shareholder is properly reflected [together with the original for sighting].
b. A copy of the share certificate issued to each shareholder.
c. A certified true copy of Form C02 [Return of Allotments] filed with the
Corporate Affairs Commission.
d. 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.
e. A certified true copy of the Memorandum and Articles of Association filed
with the Corporate Affairs Commission.
f. The opening statement of affairs audited by an approved firm of
accountants practising in Nigeria.
g. A certified true copy of the certificate of incorporation of the company
[together with the original for sighting purposes only].
h. 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.
i. A letter of undertaking to comply with all the rules and regulations guiding
the operations of Finance Companies.
j. Evidence of registration with the Finance Company’s association umbrella
body.

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ii. The Finance Company shall inform the Central Bank of Nigeria of the location
and address of its Head Office.

iii. The Finance Company shall be informed in writing by the Central Bank of
Nigeria that it may commence business after physical inspection of its
premises.

iv. The Finance Company shall inform the Central Bank of Nigeria in writing of the
date of commencement of business.

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4 Sources of Funds

The sources of funds of a Finance Company shall consist of the following:

i. Shareholders’ Funds

ii. Borrowings:
a. Borrowings from members of the public
b. Inter-corporate borrowings
c. Borrowings from banks and other financial institutions

iii. Securities
a. Commercial papers
b. Debentures / investment notes

iv. SME Funds:

a. Finance Companies can access SME funds subject to compliance with
minimum prudential norms, as defined by the CBN
b. 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)
c. 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

v. Foreign funding arrangements:

a. FCs shall be allowed to raise funds from foreign investors or parties
subject to CBN approval

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5 Rendition of Returns

5.1 Periodic Returns (Quarterly)

In compliance with the provisions of section 58[2]b of BOFIA 25, 1991 [as amended]
the following quarterly returns are to be submitted by every Finance Company:

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

All quarterly returns must reach the Director of Other Financial Institutions
Supervision Department (OFISD) not later than the 14th day of the month
immediately following the end of the quarter. The Managing Director/Chief Executive

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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.

5.2 Submission and publication of Audited Financial Statements

Every Finance Company shall submit its audited financial statements and the
abridged version of the accounts to the Director of Other Financial Institutions
Supervision Department 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, Other Financial Institutions Supervision Department (OFISD) not later than
three 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 25, 1991 [as amended] and any policy guidelines in force
during the year in question and the auditor’s report shall reflect such contraventions.

Any company that fails to comply with any of the above requirements will be liable to
a fine of N5,000 per day.

5.3 Penalties for late or false/ inaccurate returns or other information

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 Bank 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
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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.

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6 Prudential Requirements

6.1 Capital Funds Adequacy

The minimum Capital/Risk Weighted Assets Ratio for each Finance Company shall
be 12.5%. Furthermore, a Finance Company is expected to maintain a ratio of not
more than 1:10 between its capital funds and net credits. When the above ratio falls
below the prescribed level, the Finance Company may not do any or all of the
following until the required ratio is restored:

i. Grant credits and make investment.

ii. Pay dividend to shareholders.

iii. Borrow from the investing public.

In addition, the Finance Company may be required to submit within a specified

period, a recapitalization plan acceptable to the Central Bank of Nigeria. Failure to
comply with the above may constitute a ground for the revocation of the licence of
the Finance Company or such other penalties as may be deemed appropriate.
Finance Companies are enjoined to ensure that their shareholders’ funds do not fall
below the required minimum paid-up capital.

6.2 Maintenance of capital funds

Transfer to Statutory Reserve from profit after tax shall be at a minimum of 15% until
the Reserve Fund equals the Paid-up Capital and a minimum of 10% thereafter. The
Central Bank of Nigeria may vary from time to time the proportion of net profit
transferable to Statutory Reserves. No accretion shall be made to the reserve fund
until:

i. All preliminary and pre-operational expenses have been written off;

ii. Adequate provision has been made for loan loss/assets deterioration;

iii. All identifiable losses have been fully provided for.

6.3 Payment of dividend

No dividend shall be paid until after:

i. All accumulated losses have been fully absorbed and written off.

ii. All preliminary and pre-operational expenses have been written off.

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iii. Capital Adequacy ratio has been met.

iv. All matured obligations have been met.

6.4 Limit of lending to a single borrower

The maximum loan by a Finance Company to any person or corporate organization
or maximum investment in any venture by a Finance Company shall be 20% of the
Finance Company’s shareholders’ funds unimpaired by losses.

Any contravention will attract a penalty of N100,000 on the Finance Company and a
fine of N10,000 on the directors/managers who failed to comply.

6.5 Borrowing limits

The minimum amount which a Finance Company can borrow from any one person, is
N50,000, and shall be N2,000,000 for corporate borrowings (subject to a maximum
limit for all outstanding borrowings which should not be more than 10 times the
shareholders’ funds unimpaired by losses). For contravention of this requirement, the
Governor may impose relevant penalties on the Finance Company.

6.6 Provision for classified assets

Each Finance Company shall review at least once every quarter its loans and
advances and other investments and make appropriate provisions for loan losses or
assets deterioration in accordance with the Central Bank of Nigeria Prudential
Guidelines for Licensed Banks. Every Finance Company must send to the Other
Financial Institutions Supervision Department every quarter a schedule of loans/
investments showing the provisions made for losses or deterioration in the quality of
the loans/investments.

6.7 Ratio of non-performing loans to total gross loans

The maximum ratio of non-performing loans to total gross loans for Finance
Companies shall not at any point in time exceed 10%. This ratio may be reviewed by
the CBN from time to time.

6.8 Contingent items

The concept, use and treatment of Bankers Acceptances [BAs] and Commercial
Papers [CPs] as specified in Circular BSD/PA/4/97 dated 12/8/97 to banks and
discount houses shall apply to Finance Companies.

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6.9 Limit of investment in fixed assets

The maximum amount which a Finance Company can invest in fixed assets is 20%
of its shareholders’ funds unimpaired by losses. In the same vein, the financial assets
of a Finance Company shall not be less than 75% of total assets. Also, at least 75%
of income shall come from the principal activities of a Finance Company. Any
contravention, will attract a penalty not exceeding N200,000 or suspension of any
licence issued.

6.10 Revaluation of fixed assets

Prior approval of the Central Bank of Nigeria must be obtained by any Finance
Company before the recognition of the revaluation surplus on fixed assets in its
books, taking into consideration the following:

i. The basis of the underlying fixed assets valuations must be stated, and the
valuation made by qualified professional valuers whose identity and
qualifications are stated.

ii. The difference between the market and the historic values of the eligible fixed
assets being revalued is to be discounted by 55%;

iii. Revaluation of fixed assets is applicable only to assets. [own premises only].

iv. The revaluation of Fixed Assets (owned premises only) is permissible within a
minimum period of 5 years after the date of the purchase of the asset or the last
revaluation.

6.11 Requirements for increase in share capital

All increases in share capital in any form must be approved by the Central Bank of
Nigeria. Application in respect of this must be supported by the following:

i. Evidence of payment of stamp duty.

ii. Board Resolution authorizing the increase.

iii. Corporate Affairs Commission [CAC] registration of the increase.

iv. Form C02 showing the additional capital.

v. Share certificate issued to shareholders.

vi. Photocopy of share register showing the entries of allotment.

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vii. Evidence of payment for the new allotment of shares by the shareholders
[photocopies of cheques lodged should be attached]. No cash payment is
allowed.

viii. Statements of accounts from banks reflecting the cheque lodged and cleared.

ix. Vouchers showing evidence of internal transfer or payment for the right issues
allotted.

x. Letters to shareholders conveying allotment of shares.

xi. Any other information that may be required or stipulated by the Central Bank of
Nigeria.

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7 Risk Management

7.1 Enterprise Risk Management

All Finance Companies shall be required to develop an Enterprise Risk Management
Framework which will serve as a guide in the identification of risks and articulation of
control measures to mitigate/ eliminate the risks identified. The Enterprise Risk
Management Framework should be approved by the Board of Directors and should
cover the different forms of risks to which a Finance Company may be exposed.
Such risks include:

i. Credit Risk;

ii. Operational Risk;

iii. Market Risk; and

iv. Compliance Risk.

A credit administration manual shall be developed as part of the Enterprise Risk

Management Framework to guide the assessment and processing of loan requests.
The policy should, inter alia cover loan administration, disbursement and appropriate
monitoring mechanisms. The credit administration policies should be reviewed at
least every three years.

7.2 Internal Controls

Every Finance Company shall have an Internal Audit Unit which shall ensure that the
operations of the company conform with the law as well as to its internal rules and
regulations. Every fraud or attempted fraud must be promptly reported to the
Director, Other Financial Institutions Supervision Department. Also a quarterly report
on Frauds and Forgeries affecting the company and any default in meeting any
obligation to lenders or investors shall be submitted to the Director, Other Financial
Institutions Supervision Department. Where no frauds/ forgeries and defaults
occurred during the quarter, a Nil return shall be forwarded. The report shall be made
along with the quarterly returns on assets and liabilities. Failure to comply with this
requirement will attract a fine of N25,000 per quarter.

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7.2.1 Appointment of Auditor

Every Finance Company shall appoint an auditor to be approved by the Bank whose
duties shall be to make to the shareholders a report on the annual financial
statements of the company and every such report shall contain true and fair
statements as to the matters and such other information as may be prescribed from
time to time by the Central Bank of Nigeria.

7.3 Basic Information on Borrowers

Finance Companies shall take reasonable steps to verify the customers’ financial
situation and verify that their customers maintain sound financial practices:

i. Finance Companies may request for the customer’s statement of accounts and
any other information to ascertain the customers’ financial position.

ii. Finance Companies shall consult at least two (2) licensed credit bureaux to
obtain credit information on borrowers.

iii. Finance Companies shall maintain a database of their customers and generate
quarterly risk management reports to be submitted to the CBN

7.4 Disclosure of interest by Directors and Officers of Finance Companies

Every Director and officer of a Finance Company, who has any personal interest,
whether directly or indirectly, in an advance, loan or credit facility or proposed
advance, loan or credit facility from the Finance Company in which he is serving,
shall promptly declare the nature of his interest to the Board of Directors of the
Finance Company and the declaration shall be circulated to all the directors.

Every Director or officer of a Finance Company who holds any office or possesses
any property whereby, whether directly or indirectly, duties or interests might be
created in conflict with his duties or interest as a Director or Officer of the Finance
Company, shall declare at a meeting of the Board of Directors of the Finance
Company, the fact and the nature, character and extent of such interests. Any
Director or Officer who contravenes either of these regulations shall be liable to a fine
of N100,000 or removal from office.

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8 Supervision and Compliance

The CBN shall conduct periodic on-site and off-site supervision of Finance
Companies:

i. On-site supervision: Finance Companies shall be inspected comprehensively

on an annual basis. Risk and compliance based supervision will be adopted in
the examination of Finance Companies.

ii. Off-site supervision: Quarterly computerized off-site surveillance through the

review of statutory returns filed by Finance Companies.

iii. Failure of any Finance Company to submit statutory returns after six (6) months
shall lead to a revocation of its license.

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9 Corporate Governance

9.1 Compliance with the provisions of the Code of Corporate Governance

and the Approved Persons Regime
Finance Companies must demonstrate compliance with the CBN Code of Corporate
Governance and show evidence of a competent, independent, unimpaired and
uncompromised Board as stipulated in:

i. The CBN Prudential Guidelines for Licensed Banks (2010) – Section 4

(Corporate Governance); and

ii. The CBN Circular on Approved Persons’ Regime for Financial Institutions
(2011).

Finance Companies shall be required to disclose the following information on its

public website, in its annual and periodic reports, and in returns to the CBN:

i. Process for ensuring the integrity of its financial and non-financial reports.

ii. Policy for handling related-party transactions.

iii. Process for nominating board members and key executives.

iv. Capacity building/ trainings conducted for Directors.

v. Policy for ensuring that the audit committee possesses skills and expert
knowledge in modern financial reporting, accounting and auditing.

vi. Policy on potential conflicts of interest.

vii. Policy on internal lending to officers, employees directors or controlling

shareholders.

The Chairman and the Chief Executive Officer shall attest to the corporate
governance report on behalf of the board.

9.2 Structure of the Board of Directors of Finance Companies

The structure of the Board of Directors of Finance Companies shall be as follows:

i. The Board shall have a minimum of five and maximum of nine directors, with
more than fifty percent of the board of directors comprising of non-executive
directors.

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Revised Guidelines for Finance Companies in Nigeria

ii. The Board shall have a minimum of one (1) and a maximum of two (2)
independent directors.

iii. The maximum tenure of two terms of four (4) years each for independent
directors.

iv. The tenure of the CEO and directors of Finance Companies shall be limited to a
maximum of two (2) terms of five (5) years each. However, the CBN recognises
the need for proper transition and shall define proper transition guidelines and
timelines for implementation.

v. The Board shall lay down a code of conduct for all Board members and senior
management staff.

vi. All Board members and senior management personnel shall affirm compliance
with the code on an annual basis.

vii. To qualify for the position of a director in a Finance Company, it is required that
the person(s) must not be current employees or directors of banks or other
financial institutions, except the Finance Company is promoted by the banks or
other financial institutions and are representing the interest of such institutions.

viii. However, in circumstances where current directors or employees of banks or

other financial institutions are proposed for the position of director, the consent
of their employers must be given in writing to the CBN.

ix. The appointment of new directors must be preceded by CBN’s approval.

9.3 Management requirements

The following minimum qualifications and experience are mandatory for officers who
may occupy the top management positions in the Finance Company:

i. Managing Director/Chief Executive:

a. A minimum of first degree or its equivalent in any discipline (additional
qualification in any business related discipline may be an advantage); and
b. A minimum of 8 years post-qualification experience out of which, at least, 5
must have been in the financial services industry and at least, 3 at the
senior management level.

ii. Departmental Head:

a. A minimum of first degree or its equivalent in any discipline (additional
qualification in any business related discipline may be an advantage); and
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Revised Guidelines for Finance Companies in Nigeria

b. A minimum of 5 years post-qualification experience out of which, at least, 4

must have been in the financial services industry and at least, 2 at the
senior management level.

iii. Support staff - shall be qualified and be of proven ability.

iv. A person with any other qualifications or experience that may be considered
adequate by the Central Bank of Nigeria can hold any of positions [i], [ii] and [iii]
above within the organization.

9.4 Appointment or replacement of Principal Officers

The appointment or replacement of the Chief Executive Officer or any of the Principal
Officers of any Finance Company must be cleared with the Central Bank of Nigeria
before such appointments are made. Where the turnover of principal and senior
officers is considered to be unduly high or where the reason for leaving by an officer
suggests an attempt to cover up a fraud or other illegal activity, or punish the officer
for attempting to prevent illegal activities, the Central Bank of Nigeria shall cause an
investigation to be conducted into the matter and other affairs of the Finance
Company as may be considered necessary. The report of such investigation or
special examination shall determine the penalty to be imposed on the Finance
Company concerned.

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Revised Guidelines for Finance Companies in Nigeria

10 Other Regulatory Requirements

10.1 Opening/ closing of branches of Finance Companies

Prior approval of the Central Bank of Nigeria is required for the opening and closing
of branches. If in contravention, the Finance Company shall be made to pay a fine
not exceeding N200,000 and the closing/reopening of the branch as the case may be
and in addition, a fine of N10,000 for each day during which the offence continues.

10.2 Restructuring and Reorganization of Finance Companies

Except with the prior consent of the Governor, no Finance Company shall enter into
an agreement or arrangement:

i. which results in a change in the control of the Finance Company;

ii. for the sale, disposal or transfer of the whole or any part of the business of the
Finance Company;

iii. for the amalgamation or merger of the Finance Company with any other
company.

iv. for the reconstruction of the Finance Company;

v. to employ a management agent or to transfer its business to any such agent.

10.3 Schemes of Arrangement

No Finance Company shall enter into any “Scheme of Arrangement” with its
creditors/ investors without obtaining the prior approval of the Central Bank of
Nigeria. Any Finance Company that is unable to meet its obligations to its creditors or
investors must submit its proposals to restore liquidity or viability and for eventual
settlement of its outstanding obligations to the Director, Other Financial Institutions
Supervision Department for consideration and approval. Failure to comply with this
will attract a penalty of N2,500 for each day during which the contravention exists.

10.4 Display of Licence

A copy of a Finance Company’s licence shall be displayed in a conspicuous position
at its Head Office as well as in the branches. In contravention, the Finance Company
shall be penalized in line with Section 60[i] of BOFIA as amended.

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Revised Guidelines for Finance Companies in Nigeria

10.5 Display of Interest Rates

Every Finance Company shall display on a daily basis in a conspicuous place at its
Head Office and branches, its rates of interest. Interest rates shall be quoted on a
monthly basis.

10.6 Conditions for revocation of Licence

The grounds for revoking a licence granted to a Finance Company may be any or all
of the following:

i. Submission of false information/data during and/or after the processing of the

application for licence.

ii. Engaging in functions/ activities outside the scope of its licence as specified in
Section 1 of these Revised Guidelines.

iii. Persistent failure to comply with request for information/data in the form
required/ specified by Central Bank of Nigeria.

iv. Engaging in activities prejudicial to the Nigerian economy.

v. Failure to redeem matured obligations to customers.

vi. Unauthorized shop closure.

vii. Failure to comply with any directive issued by Central Bank of Nigeria.

viii. Failure to renew operating licence within the stipulated period.

ix. Any other act[s] which in the opinion of Central Bank of Nigeria constitute[s] a
violation or a serious default.

10.7 Know Your Customer (KYC) and Anti-Money Laundering Measures

All Finance Companies shall be required to comply with the principles and
procedures of “Know Your Customer” and other relevant circulars and guidelines as
issued by the CBN. Finance Companies shall also be required to comply with the
Anti-money Laundering and Counter-Financing of Terrorism Act and relevant
circulars as issued by the CBN.

i. Finance Companies shall define KYC policies incorporating the following key
elements of:
a. Customer Acceptance Policy
b. Customer Identification Procedures
c. Risk profiling and transaction monitoring data
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Revised Guidelines for Finance Companies in Nigeria

ii. Finance Companies shall submit KYC returns to the CBN on a quarterly basis.

10.8 Other prohibitions

In addition to other non-permissible activities, no Finance Company shall:

i. Give any credit facility or enter into any other transaction against the security of
its own shares or the shares of its holding company;

ii. Pay any dividend on its shares without Central Bank of Nigeria’s prior approval
in writing;

iii. Engage in any business other than those for which it was licensed;

iv. Remit either in whole or in part the debts owed to it by its directors/officers or
waive interest thereon without the prior approval of the Central Bank of Nigeria,
in writing.

10.9 Competition, consumer protection and operational rules

Finance Companies shall be required to have a Code of ethical conduct, which shall:

i. Establish standards for the appropriate treatment of customers to promote

transparent pricing;

ii. Establish guidelines for ethical staff behaviour, mechanisms for redress of
grievances and measures to ensure the privacy of client data; and

iii. To ensure the protection of customers, aggrieved parties shall complain to the
Consumer and Financial Protection Department of the CBN for adequate
issues handling/ resolution.

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Revised Guidelines for Finance Companies in Nigeria

11 Industry Support Initiatives

11.1 Access to SME Funds

i. Finance Companies shall be permitted to participate in accessing and
disbursing funds to SMEs via the relevant vehicles/ intervention funds set up by
the CBN, Government or other relevant bodies/ agencies e.g. SME Credit
Guarantee Scheme, MSME Development Fund, and the Nigerian Incentive-
Based Risk Sharing System for Agricultural Lending (NIRSAL) funds e.t.c.

ii. To help SMEs access these intervention funds, Finance Companies need to
build capacity to assist SMEs through financial consultancy to enable the
customers meet the required criteria set by the managing agent(s) for such
funds.

iii. Finance Companies shall serve as intermediaries to the fund and may assist
with monitoring and collection.

11.2 Capacity Building Programmes

i. The CBN shall continue to provide support towards capacity building in the
Finance Company sub-sector.
a. A report shall be prepared and submitted to the CBN on an annual basis,
detailing the utilisation of funds provided by the CBN to support capacity
building within the Finance Company sub-sector.
b. Finance Companies shall have annual budgets for staff capacity building as
part of their yearly budgets.
c. Implementation of the capacity building budget shall be monitored by the
CBN on a periodic basis.

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Revised Guidelines for Finance Companies in Nigeria

12 Transitional Provisions

The deadline for compliance with the provisions of the Revised Guidelines shall be
30th September 2015. The list of valid licences shall be published by the Central
Bank of Nigeria from time to time.

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Revised Guidelines for Finance Companies in Nigeria

PENALTIES FOR VARIOUS OFFENCES

S/N OFFENCES PENALTIES

1 Operating without a valid Outright closure of the institution and prosecution of
licence the individuals behind the institution.
2 Engaging in activities outside A fine of N10,000 for each day of the default with a
the approved business. maximum of N1 million .In addition , the institution
should forfeit the estimated profit
3 Failure to attain the prescribed Revocation of licence
minimum paid-up share capital
within the time allowed
4 Failure to obtain the approval A fine of N20,000 payable, by the institution, for each
of the CBN for the appointment of the Directors or top management staff so
of new Directors and top appointed. In addition, the appointee should cease to
management staff function in that position.
5 Late rendition of prudential A fine of N5,000 for each day of the default
returns
6 Late submission of audited A fine of N5,000 for each day during which default
annual accounts occurs
7 Non-submission of audited A fine of N1,500,000 for the accounting year
annual accounts to CBN after concerned.
12 months of end year
8 Submission of false/Inaccurate For the Institution, a fine of N500,000. For individuals,
information to the CBN/NDIC a fine not exceeding N100,000. All the Officers
involved should be sanctioned
9 Non-rendition of regulatory Revocation of licence.
returns for more than 6
quarters consecutively
10 Failure to publish annual A fine of N100,000 for non publication and thereafter
accounts. published in a newspaper
11 Failure to disclose A fine of N100,000 for non-disclosure and thereafter
contraventions and penalties in publish in a newspaper disclosing the contraventions
the audited annual accounts
12 Failure to maintain proper A fine of N50,000 for each Director andN20,000 each
books of accounts and records. for the officers involved
13 Failure to provide any In the case of the institution, a fine not more than
information required by the N100,000.
CBN in the prescribed manner In the case of individuals, a fine not more than
N50,000 in addition to other disciplinary action
deemed necessary by the CBN
14 Failure to report dismissed staff A fine of N25,000 payable by the institution.
to the CBN/NDIC
15 Failure to report fraud and A fine of N100,000 payable by the institution.
forgeries to CBN/NDIC.
16 (a)Opening of branch without A fine of N 200,000 and the closure of such branch

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Revised Guidelines for Finance Companies in Nigeria

the approval of the CBN. A fine of N200,000 and in addition the branch should
(b) Closing of branch without be re-opened
the approval of the CBN.
17 Investment of more than 20% A fine not exceeding N200,000 in addition to an
of shareholders’ fund in fixed immediate injection of funds by the shareholders to
assets reduce the percentage of investment in fixed assets
to a maximum 20%.
18 Revaluation of fixed assets Reversal to the previous value and letter of warning.
without CBN approval.
19 Change in ownership, take A fine of not less than N500,000.
over or amalgamation without
CBN approval.
20 Contravention of the single A fine of not less than N100,000 for the institution and
obligor limit without CBN a fine of N10,000 for the approving officer
approval
21 Failure to pay annual licence Revocation of licence
renewal fees within 12 months
22 Late payment of annual licence A fine of 25% of the renewal fee.
renewal fees
23 Change of name without the A fine of N100,000 and an immediate reversal to the
approval of the CBN. formal name.
24 Non-display of operating A fine of N20,000 and the immediate display of the
licence and the interest rate in licence/interest rate.
a conspicuous location in the
Head-Office/Branches/Cash
centres
25 (i) Persistent failure/refusal to Revocation of licence.
render the required returns in Revocation of licence
the Revocation of licence
prescribed form for a period of Revocation of licence
twelvemonths.
(ii) Persistent failure to comply
with any other requirement of
the monetary policy guidelines,
provisions of the Banks and
Other financial Institutions Act
(BOFIA) 1991 as amended, as
well as other circulars issued
by the CBN for a period of
twelve months.
(iii) Engaging in activities
prejudicial to the Nigerian
economy.
(iv) Any other act which in the
opinion
of the CBN constitutes a
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Revised Guidelines for Finance Companies in Nigeria

serious
offence.
26 Failure to convene a special A fine of N25,000 for each week during
meeting of the Board of which the offence continues.
Directors for the presentation
of an Examination Report
within four weeks and failure to
convey the reaction of the
Directors to the CBN within two
weeks of the presentation
27 Failure to implement the A fine of N1000 for each day of the default
recommendations contained in
the
examination report
28 Change of External Auditors A warning letter to the Board. In addition the External
without the approval of the Auditor should be re-instated
CBN
29 Failure to report Director A fine of N50,000
related credits to the
CBN/NDIC
30 Granting unsecured credits A fine of N10,000 and in addition the approving
aboveN100,000 officers should be sanctioned
31 Failure by Directors to Removal of the Director from Office
complete the code of conduct
forms
32 Non-compliance with the code Removal of the Director from Office
of conduct by the Directors
33 Holding AGM without approved A fine of N500,000.
accounts
34 Failure to service credit facility A fine of N10,000 for the Director, repayment of the
granted to Directors and their facility plus the
relations accrued interest and suspension of the Director from
the membership of the Board until the payment is
finally redeemed

OFISD
April 2014

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