News Column

CBN Raises Capital Base of Finance Companies to N100 Million

July 14, 2014

Babajide Komolafe



The Central Bank of Nigeria (CBN) has increased the minimum capital base of Finance Companies by 400 percent to N100 million, with September 2015 as deadline for compliance.

This was announced in Lagos by Mr. Mudashiru Adegbite, Deputy Director, Other Financial Institutions Supervision (OFIS) department, CBN at a stakeholders meeting on the new guidelines for finance companies.

He said that under the new guidelines, the minimum capital requirement of finance companies (FCs) has been increased from N20 million to N100 million, while the ratio of non-performing loans to total loans is now pegged at maximum of 10 percent.

"The deadline for compliance with the provisions of the Revised Guidelines shall be 30th September, 2015, which is 18 months from April, 2014."

Explaining the rationale for the reforms, Adegbite said that the new guidelines were the products of efforts to reform the sector. The reform, he noted, was due to the failure of the sub-sector to fulfill its mandate due to the following challenges and inadequacies: poor/inadequate funding; weak technical and human capacity; poor corporate governance; investment in high risk portfolio; poor industry perception and intense competition from banks and OFIs with higher funding capacity.

"Failure of the sub-sector to fulfill its mandate after 28 years of existence which was due to the challenges identified above and the need to appropriately situate the finance companies in the emerging integrated financial architecture as envisioned in FSS 2020 necessitated the need for a comprehensive reform of the sub-sector", he said.

The new guidelines limit the scope of activities of finance companies to; Asset Finance (i.e. Operating lease, Finance lease, Hire purchase), consumer loans, project finance, LPO finance' Import and export finance; debt factoring, debt securitization and Debt Factoring, financial consultancy, Issuing of vouchers, coupons, cards and token stamps.

The guidelines banned FCs from some activities namely: Capital market activities (i.e. stock broking, issuing house business), registrars' services, Non-financial activities (i.e. trading, construction and project management), and Forex trading (except via the correspondent banks).

Other highlights of the new guidelines are: Maximum Borrowing Limit retained at 10 times Shareholders Funds unimpaired by losses; Minimum Borrowing from individual pegged at N50,000; Minimum Borrowing from Corporate Organisation pegged at N2 million; Maximum investment in Fixed Assets reduced from 50 percent to 20 percent of adjusted capital; At least 75 percent of total assets to be income generating and 75 percent of income from core activities. FCs are mandated to consult at least two licensed credit bureaux to obtain credit information on borrowers

The new guidelines also restrict the board composition of finance companies to minimum of five directors and maximum of nine directors, while non executive directors must be more than executive directors. The number of independent directors was pegged at minimum of one, and maximum of two directors

The tenor of Chief Executive Officers (CEOs) of FCs was pegged at two terms of five years each, while that of independent directors was pegged at two terms of four years each.


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Source: AllAfrica


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