CBN issues guidelines for development finance institutions

The Central Bank of Nigeria on Thursday issued guidelines to regulate the operations of development finance institutions in the country.

The guidelines issued in Abuja, the CBN said, are to provide a level playing field for operators in the development finance subsector, to further direct private capital to participating financial institutions.

Also, the CBN said the guidelines would provide a framework for licensing, regulation and supervision of both wholesale and retail development finance institutions.

The wholesale institutions would require a minimum capital of N100billion payable over a maximum period of four years, out of which N20billion is paid prior to being granted the approval in principle, in addition to N250,000 non-refundable application fee and N1million licensing fee.

The capital for retail institutions has been put at N10billion, with a non-refundable application fee of N100,000 and licensing fee of N500,000.

Rather than compete directly with the retail institution at the retail market, the CBN said the whole institution shall mainly provide wholesale financial products (at least 80 percent of total credit) and facilitate technical assistance to eligible participating financial institutions nationwide.

The establishment of development finance institutions was to provide financial interventions in micro-, small and medium enterprises as the engine of growth, to complement the efforts of banks and other financial institutions.

Also, the institutions were to accelerate the pace of development of the country’s economy and realization of the key roles of some critical sectors in the process.

However, due to limited access to long-term and low-interest funds, the development finance institutions had recorded limited success.

To bridge the gap and increase the availability and access to finance micro-, small and medium enterprises, the Federal Government in collaboration with development partners and international financial institutions established the wholesale development finance institutions.

The institutions are to help fund these enterprises for economic development; foster growth in sustainable businesses; create jobs, reduce poverty and improve quality of lives.

The institutions, like all financial institutions regulated by the CBN, would be subject to regulation and supervision by the CBN under the Banks and Other Financial Institutions Act, CAP B3, Laws of the Federation of Nigeria, 2010.

The guidelines, the CBN said, are designed to be consistent with CBN’s existing regulations for all licensed financial institutions, to ensure that they operate in a safe and sound manner.

While the institutions are authorized to provide finance and credit facilities to eligible borrowers; refinance micro- small and medium enterprises and loans to large enterprises as well as invest in government securities, they are not permitted to accept or demand, savings and time deposits, or any type of deposits.

Also, they are barred from taking proprietary positions in real estate other than for its own business; management of pension funds/schemes; provide fund/asset management services; engage in foreign exchange, commodity and equity trading as well as finance capital market operations.