Thursday, March 19, 2015 12.29PM/CBN
In a bid to accelerate the pace of development of the Nigerian economy and realization of the key roles of some critical sectors in the process, the Federal Government of Nigeria has over the years established development finance institutions (DFIs) to provide financial interventions in enterprises in the identified sectors to complement the efforts of banks and other financial institutions (OFIs). However, due to limited access to long-term and low-interest funds, in addition to other factors, the DFIs have recorded limited success. Consequently, the Federal Government in collaboration with development partners and international financial institutions (IFIs) decided to sponsor the establishment of a Wholesale DFI (WDFI) to bridge the gap and to increase the availability and access to finance, in particular, for micro-, small and medium enterprises (MSMEs) being the engine of growth, without excluding Large Enterprises (LEs). The benefits of WDFIs are documented and acknowledged in both developed and emerging markets.
In support of this initiative, the Central Bank of Nigeria (CBN) has decided to develop this Regulatory and Supervisory Guidelines to provide a level playing field for participants in the Development Financing subsector and to further direct private capital to participating financial institutions (PFIs). This Guidelines will provide a framework for licensing, regulation and supervision of both WDFI and Retail DFI (RDFI). Rather than compete directly with RDFI at the retail market, WDFI shall mainly provide wholesale financial products (at least 80 percent of total credit) and facilitate technical assistance to eligible participating financial institutions (PFIs) throughout Nigeria.
As with all financial institutions regulated by the CBN, DFIs shall 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 (herein after referred to as “BOFIA”). While it is recognized that some DFIs were set up by specific Acts of the National Assembly, it should be noted that all DFIs have been brought under the CBN’s regulatory purview by virtue of subsequent amendment to BOFIA in 1999. These guidelines are designed to be consistent with CBN’s existing regulations for all licensed financial institutions and to ensure that DFIs operate in a safe and sound manner.
The guidelines are arranged in twelve sections, beginning with definitions and objectives of DFIs, followed by powers and duties of the CBN with respect to the operations of DFIs. The third and fourth sections highlight the permissible and non-permissible activities, and the licensing procedure and requirements, respectively. The fifth section deals with corporate governance requirements, while section six focuses on sources of funds for DFIs. Section seven and eight provide for rendition of statutory returns and prudential requirements, respectively. Other regulatory approvals, on-site examination and off-site surveillance, and administrative sanctions and actions are covered under sections nine, ten and eleven, respectively. Section twelve itemizes the annexures to the guidelines.
1.0 DEFINITIONS AND OBJECTIVES
1.1 Definition of Development Finance Institution (DFI)
A Development Finance Institution is a specialised financial institution established with specific mandate to develop and promote key sectors of the economy considered to be of strategic importance to the overall socio-economic development objectives of the country.
1.2 Definition Of Wholesale Development Finance Institution (WDFI)
A WDFI is a development finance institution devoted principally to providing wholesale funds to PFIs for on-lending to enterprises in identified sectors.
1.3 Definition Of Retail Development Finance Institution (RDFI)
A RDFI is a development finance institution devoted principally to lending directly to enterprises/organisations in identified sectors.
1.4 Definition of Participating Financial Institution (PFI)
A PFI is a financial institution licensed and/or regulated by the Central Bank of Nigeria and is involved in lending directly to end user clients in identified sectors.
The objectives of DFIs are to:
• Fund MSMEs and LEs for economic development.
• Foster growth in sustainable businesses.
• Create Jobs.
• Reduce poverty and improve quality of lives.
2.0 POWERS AND DUTIES OF THE CENTRAL BANK OF NIGERIA
In line with the relevant provisions of BOFIA and CBN Act, Laws of the Federation of Nigeria (LFN) 2010 (hereinafter referred to as the CBN Act), the CBN shall exercise the following powers with respect to DFIs:
(a) Licensing and revocation of license.
(b) Determination of the minimum capital requirements.
(c) Approval of the appointment and removal of Board and senior management (Assistant General Manager and above).
(d) Regulation and supervision, which include:
i. Determining capital adequacy, minimum liquidity and other prudential requirements
ii. Prescribing minimum criteria upon which credits may be extended.
iii. Prescribing permissible activities.
iv. Prescribing eligible assets or portfolio of eligible assets.
v. Conducting on-site and off-site supervision.
vi. Imposition of sanctions for infractions.
vii. Investments in DFIs
(e) Any other power that may be exercised in line with the BOFIA and/or the CBN Act.