Four Federal Government-owned institutions are to fund the proposed National Credit Guarantee Company (NCGC).
The organisations are the Ministry of Finance Incorporated (MOFI), Bank of Industry (BOI), Nigeria Sovereign Investment Authority (NSIA) and Nigerian Consumer Credit Corporation(CREDICORP).
NCGC, which will be a joint venture by the four institutions, private sector players and multilateral institutions, is expected to commence operations in the second quarter of next year.
According to a document available to The Nation, NCGC will play the role of a guarantor of loans granted to borrowers, thereby reducing the risks of the lenders.
The document added that the goal of the government is to create a sustainable and effective credit guarantee entity that will support lending by sharing risks with financial institutions, thereby encouraging increased credit availability.
It (document) explained that by guaranteeing loans or loan portfolios, the NCGC will strengthen lender- confidence and facilitate wider lending practices.
The mandates of the four partner institutions include the provision of necessary financial resources and carrying out strategic oversight to ensure that NCGC fulfils its primary mission of reducing credit risks for lenders.
The NCGC will also participate in the risks undertaken by Participating Financial Institutions (PFIs) that extend credit to eligible beneficiaries.
In addition to offering direct guarantees, the NCGC will work with other credit guarantee schemes such as banks, insurance companies, and other relevant institutions. This collaborative approach is intended to enhance the overall quality and effectiveness of credit guarantees in the financial system.
Also, the company is expected to develop additional risk mitigation tools to support bank loans and similar financial instruments, providing lenders with greater assurance and flexibility.
The document stated that the NCGC will not engage in direct lending but will issue partial credit guarantees that will enable individuals and businesses to secure loans from their preferred financial institutions.
Interest rates on loans will be determined solely by the lending institutions. However, since the guarantees provided by the NCGC lower the default risk for lenders, borrowers may benefit from improved loan terms.
These may include lower interest rates of around 12 per cent, extended repayment periods, and other favourable terms that would not ordinarily be available in the absence of such risk-sharing mechanisms.
The repayment structures of loans backed by NCGC guarantees will typically vary, depending on the nature and policies of the lending institutions.
Nonetheless, because the NCGC reduces the exposure of PFIs, it is expected that they (PFIs) may offer longer loan tenors, require less collateral, and provide flexible repayment plans tailored to the cash flows of businesses or salary structures of individual borrowers.
NCGC’s primary focus areas will be MSMEs operating in various sectors such as agriculture, manufacturing, and services; individuals seeking consumer credit for essential goods and services like vehicles, housing, healthcare, and education; and domestic manufacturers.
Over time, the company may broaden its scope to cover additional sectors and financial instruments, depending on evolving market needs.
For individuals or enterprises seeking credit, the process involves first approaching a financial institution for a loan. If the institution deems the borrower eligible, it may then apply for an NCGC-backed guarantee to support the loan.
Alternatively, in some cases—especially for enterprises—the applicant may approach the NCGC directly to obtain a guarantee, which can then be used to secure a loan from a financial institution.
The NCGC will only offer partial guarantees, meaning that financial institutions will still bear a portion of the credit risk and retain responsibility for implementing recovery strategies in cases of loan default. This includes offering restructuring options to borrowers facing difficulties, thereby ensuring a balanced approach to risk-sharing between the NCGC and lending institutions.
By providing credit guarantees, the NCGC is expected to significantly expand the availability of risk-sharing tools within Nigeria’s financial system.
This initiative is designed to encourage financial institutions to take on more lending risks, thereby promoting wider access to credit, industrialisation, economic growth, and improved living standards.
Additionally, the NCGC is projected to contribute to financial inclusion, job creation, and overall economic stability by enabling more Nigerians to access credit facilities under better terms.
The document also provided clarification on how the roles of BOI and CREDICORP differ from those of the NCGC.
BOI and CREDICORP are development finance institutions mandated to advance credit using their funds.
BOI primarily supports MSMEs and industrial sectors through direct funding and financial assistance, aiming to stimulate economic growth and job creation.
CREDICORP on the other hand focuses on facilitating consumer credit through financial institutions, targeting individuals, particularly salary earners and economically active Nigerians, to enable access to credit for household needs.
This also aligns with CREDICORP’s additional mandate of encouraging the consumption of locally manufactured goods through accessible credit.
In contrast, the NCGC is not in the business of lending. It will not disburse funds directly or through intermediaries. Instead, it provides partial credit guarantees that cover a portion of potential loan defaults, thereby sharing the credit risk with lenders.
This approach incentivises financial institutions to extend more credit, confident in the knowledge that part of the risk is borne by the NCGC. The guarantees will only be activated in cases of default, with NCGC disbursing funds to cover its share of the loss, while lenders continue to bear responsibility for the remaining risk and recovery efforts.
By catalysing increased lending to both enterprises and individuals, the NCGC is expected to play a transformative role in supporting national development objectives, deepening the credit market, and unlocking economic opportunities for millions of Nigerians.
