New Capital Base For Finance Houses
August 26th, 2006 mishacko || mishacko@yahoo.co.uk
By Mishack Okpara
Central Bank of Nigeria has announced a new capital base for financial houses operating within the country. The new minimum capital base is N375million as against the former N20million. This was disclosed by the chairman of Regulatory and Standard Committee on Finance Companies (RSCFC), Mr. B.J. Rewane. He announced that the new capital base was part of a new set of reforms recommended for finance companies.The RSCFC is to review the existing regulatory framework for overseeing the activities of the non-financial institutions and make recommendations that will streamline the activities of this segment of the financial services industry with the main banking segment.
Speaking on other recommendations, Mr Rewane said Finance companies can now receive deposits. This is expected to enable finance companies source and mobilize savings mainly at the retail level and channel same to money centre banks or lend to end users as the case may be. While lending to single obligor is now 50 per cent as against the 20 per cent level before.
Also, finance companies are expected to engage in project finance. this function was omitted from the original guidelines for finance companies. The lending of money and the extension of credit at the retail level is a critical element of the roles to be played by non-bank financial institutions in any emerging economy with a large population like Nigeria. He stressed that finance companies are to act as catalyst of economic growth and the expectation that will fill the wide gap created at the retail level of banking in the meeting of consumer expectations and demand. Though finance companies are not totally retail oriented like the macro finance institutions. It is expected that some of them will develop niche business where there impact will be positively felt.
A finance company, according to CBN, means a person or company licensed to carry on finance company business. Finance Company Business means the business of providing financial services for consumers and to industrial, commercial, or agricultural enterprises. Such services include:
- Funds management;
- Equipment leasing;
- Hire-purchase;
- Debts factoring and securitisation;
- Project financing or consultancy;
- 6. Debt administration;
- LPO financing;
- Project financing;
- Export financing;
- Financial consultancy; and
- Issuing of vouchers, coupons, credit cards and token stamps and such other businesses as the CBN may, from time to time, designate.
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