EXPLAINER: The low-down on FG’s proposed credit guarantee company

When President Bola Tinubu greeted Nigerians in his New Year speech on January 1, he said his administration would establish a National Credit Guarantee Company (NCGC) before the end of the second quarter (Q2) of 2025. It was one of many promises that generally conveyed his intention to better the lot of citizens and make inflation bearable.

The NCGC is another way the federal government plans to increase access to credit for individuals and critical sectors of the economy after introducing the Nigerian Consumer Credit Corporation (CrediCorp) scheme in April 2024.

“…the federal government will establish the National Credit Guarantee Company to expand risk-sharing instruments for financial institutions and enterprises,” Tinubu had said.

Tinubu was optimistic that the initiative would boost national economic output, strengthen confidence in Nigeria’s financial system, drive growth, reindustrialisation, and support underserved groups such as women and youth — ultimately leading to “better living standards for Nigerians”.

Here are some key things to know about the project.

WHAT IS THE NCGC ABOUT?

The NCGC is reportedly designed to expand access to risk-sharing instruments (credit guarantees) for financial institutions (who lend to enterprises and consumers) and for enterprises directly. A credit guarantee is a promise to repay a loan if the borrower defaults. It could be considered a type of insurance that protects lenders from losses.

The Company — expected to start operations in Q2 this year — is a joint venture of government institutions such as the Bank of Industry (BOI), CrediCorp, the Nigerian Sovereign Investment Agency (NSIA), the private sector, and multilateral institutions.

HOW WILL IT WORK?

According to responses to TheCable’s enquiry on the project, the proposed NCGC would participate in the risks assumed by the participating financial institutions (PFIs) that expand lending, guaranteeing loans or portfolios of loans provided by them to eligible beneficiaries (enterprises and consumers).

Through co-guarantees, the proposed NCGC is also expected to join forces with other credit guarantee schemes such as insurance companies, banks, and any other institution, to strengthen the quality of their guarantees.

In addition, the NCGC is also expected to develop other de-risking solutions for bank loans and other similar facilities.

HOW IS IT DIFFERENT FROM CREDICORP AND THE SUPPORT BOI IS ALREADY PROVIDING TO MSMEs?

Insights from the document suggest that the BOI and CREDICORP are development finance institutions whose lending mandates include advancing credit with their own funds — either to enterprises (as in BOI) or to financial institutions (as in CREDICORP), done wholesale for subsequent lending to individuals.

Specifically, the BOI focuses on micro, small, and medium enterprises (MSMEs) and industrial sectors, providing direct funding and financial support to them.

CREDICORP, on the other hand, deals with consumer credit via financial institutions, ensuring that individuals – “especially salaried workers and economically active Nigerians” — can access credit for household needs to improve the quality of their lives. The corporation has an added mandate to drive consumption of locally-manufactured goods via credit.

However, the proposed NCGC will not lend any money (either directly or via financial institutions) when operational. Instead, it would require the institutions to lend their own money and offer partial credit guarantees against defaults, which reduces the credit risk for financial institutions, enabling them to expand financing for both businesses and individuals.

It is believed that by sharing the risk with lenders, the NCGC would encourage more lending at potentially better terms without directly disbursing funds, except to cover defaults.

WHAT ARE THE ROLES OF PARTNER ORGANISATIONS?

As stated earlier, the BOI, CREDICORP, MOFI, and NSIA are the major partner institutions. The companies are expected to play a role in the establishment, funding, and operational success of the NCGC. The four institutions have been mandated to collaborate to “ensure it operates effectively in reducing credit risk and expanding access to finance for MSMEs, manufacturers, and consumers across Nigeria”.

CAN NIGERIANS BEGIN LOAN REQUESTS IMMEDIATELY AFTER THE COMPANY IS LAUNCHED?

No. According to the document, the NCGC does not provide loans directly. Instead, it offers credit guarantees that help individuals and businesses secure financing from their banks or other lending institutions. Once the NCGC is operational, financial institutions can apply for (partial) credit guarantees.

WHAT ARE THE REQUIREMENTS FOR LOAN REQUESTS AND AT WHAT INTEREST RATE?

It is understood that the NCGC is unlikely to determine interest rates on loans as the rates would be set by the financial institutions providing the credit. However, because guarantees issued by the NCGC cut risk for lenders, borrowers may benefit from better loan terms such as lower interest rates, and longer repayment periods.

WHAT ARE THE REPAYMENT TERMS?

Typically, repayment terms are expected to vary based on loan type and lenders. But PFIS may subsequently offer longer loan tenors than standard market loans since the NCGC is meant to narrow lending risks for them.

It was also learnt that borrowers may see lower collateral requirements and flexible repayment structures aligned with business cash flows or salary deductions for individuals.

WHAT BUSINESSES WILL THE COMPANY SERVE?

Details of the project say the NCGC will primarily focus on MSMEs across various sectors, including agriculture, manufacturing, and services. It is also expected to cover local manufacturers and individuals seeking consumer credit for essential needs such as vehicles, housing and home improvement, electronics, healthcare, and education.

It is understood that the company may subsequently expand its scope over time to cover additional sectors and lending instruments.

CAN INDIVIDUALS APPLY FOR LOANS FOR PERSONAL NEEDS?

Because the NCGC would only provide credit guarantees to financial institutions, individuals seeking financing for personal needs must first approach a bank or lender, which may then seek an NCGC-backed guarantee to support the loan.

Alternatively, applicants (especially enterprises) may also approach the NCGC directly to request a guarantee, which they can then present to a financial institution to secure a loan.

WHAT HAPPENS IN THE EVENT OF A LOAN DEFAULT?

Under the scheme, the PFIs will still bear part of the credit risk because the NCGC would only provide partial guarantees against loan defaults. This means lenders will be required to implement recovery strategies — which may include restructuring options for struggling borrowers — where necessary.