CREDIT GUARANTEE SCHEMES: CBN GUIDELINE SECURES WIDER CREDIT ACCESS TO MSMEs VIA CREDIT GUARANTEE COMPANIES IN NIGERIA

Introduction  

In Nigeria, money is essential for fulfilling personal needs and achieving business goals. To realise business goals, most businesses opt for loans and credit facilities. Loans are therefore becoming essential for most micro, small, and medium enterprises (MSMEs) to survive and operate properly. However, obtaining these loans from certified lending institutions, including financial institutions, remains difficult and requires stringent collateral requirements.  

In 2025, the Federal Government of Nigeria (FGN) established the National Credit Guarantee Company Limited (NCGC) to dismantle longstanding barriers to credit access and to unlock financing opportunities for Nigerian enterprises across sectors by providing partial credit guarantees to financial institutions, reducing lending risks and promoting inclusive economic growth. On 27^th October 2026, the NCGC confirmed to have unlocked ₦64.13 billion in loans for 174,495 borrowers nationwide within a year of operation as at 21^st October 2026, accounting for first-time access to bank credit, increased participation of female beneficiaries, among other things.  

This newsletter introduces the concept of credit guarantee, briefly reviews the CBN guidelines, and explains its implications for small businesses. 

Concept of Credit Guarantee 

A credit guarantee is a risk-sharing tool that assures a lender (usually a financial institution) that a portion of their loan exposure will be covered by a third party (usually a guarantor) in case the borrower defaults. This reduces the lender’s risk and encourages them to extend credit to more borrowers they might otherwise consider too risky, especially MSMEs and underserved sectors. A guarantee issued by a Credit Guarantee Company (CGC) represents a legal commitment to discharge an agreed portion of the liability of a borrower in the case of default.  

A CGC is an institution licensed by the Central Bank of Nigeria (CBN) with the primary objective of providing guarantees to banks and other lending institutions licensed by the CBN against the risk of default by obligors. 

In a credit guarantee scheme (CGS), the borrower has no direct access to the guarantor except through the lender; thus, applications by eligible borrowers are made through participating financial institutions (PFI) such as a commercial bank, microfinance bank, or other CBN-licensed lenders. To qualify for credit guarantee, a borrower must first be considered an eligible borrower by the PFI. 

Before exploring a loan facility, an individual, business, or a company is encouraged to consider the following:  

1. The purpose of the loan

2. The loan amount required

3. The ability to pay the principal and interest over the repayment period

4. The lending financial institution

5. The required collateral (guarantee where applicable) for the loan

6. The terms and conditions of the loan offer.

Brief Overview: Guidelines for Regulation and Supervision of Credit Guarantee Companies in Nigeria.  

As a regulator of credit guarantee companies (CGCs), the Central Bank of Nigeria (CBN), in exercising the powers conferred on it by Section 2(d) of the CBN Act 2007 and Section 56(2) of the Banks and Other Financial Institutions Act (BOFIA) 2020, released a circular issuing the Guidelines for Regulation and Supervision of Credit Guarantee Companies in Nigeria (‘the Guideline’). The guideline stipulates minimum licensing, governance, and prudential requirements for prospective credit guarantee companies.  

Key Provisions of the Guideline 

1. Licensing: Under the guideline, CGCs are required to be licensed by the CBN before engaging in a credit guarantee scheme. Thus, a formal application is to be made to the CBN Governor for a grant of a CGC license in two stages: Approval-in-Principle (AIP) and final licence. Before the grant of a final license, the CBN shall conduct an inspection of the premises and facilities of the proposed CGC to inspect the physical structure of the premises, sight the original documents required, and meet with the Board and management team of the CGC. Upon the grant of the final license, the guideline provides for pre-commencement and post-commencement requirements to be fulfilled by the CGC.

2. Governance: A CGC must be a company incorporated under the Corporate Affairs Commission (CAC), and thus the corporate governance requirements of a CGC are similar to the provisions of the Nigerian Code of Corporate Governance (NCCG) 2018. The guideline sets out the responsibilities, composition, and size of the Board, Board & Board Committee meetings, remuneration, Board appraisal, and qualifications for executive directors.

3. Risk Management Policy: As a guarantor, CGCs are required to develop and document an Enterprise Risk Management Policy (ERMP) which shall cover all the risks to which a CGC may be exposed, including: Guarantee Risk, Concentration Risk, Liquidity Risk, Operational Risk, Legal/ Regulatory Risk, and Market Risk.

4. Prudential Requirements: The guideline requires CGCs to cover up a minimum of 75% of the default amount. After the crystallized guarantee has been settled, the PFI and the CGC shall be required to take all necessary steps to recover the outstanding sum, and the CGC shall be reimbursed to the extent of the recovered sum. The PFI shall lead this process, in line with the provisions of the extant Consumer Protection Regulations (CPR), including the Fair Debt Collection Practices Act.

5. The CBN reserves the right to revoke a CGC license where there is evidence of insolvency, misuse of the license, unauthorised cessation of business for any continuous period of six (6) months or any period aggregating six (6) months during a continuous period of twelve (12) months, or breach of the CGC Guidelines.

Benefits of Credit Guarantee Schemes  

1. Expands Access to Credit: Encourages banks to lend to high-risk or underserved groups, such as MSMEs, women, and young entrepreneurs.

2. Lowers Collateral Burden: Relaxes the strict property or asset requirements that small businesses normally face.

3. Improves Loan Terms: Can help reduce interest rates or make repayment schedules more flexible by removing a large share of the lender’s risk.

4. Improves risk management in the financial system.

5. Fosters sustainable and inclusive growth for businesses, PFI, and the economy at large.

Risks of Credit Guarantee Scheme 

1. Stricter or Onerous Qualification Criteria: Although requests for physical collateral requirements are reduced, CGS programs often enforce rigid, bureaucratic, and oftentimes impractical eligibility conditions difficult for small businesses to meet.

2. Legal Liability and Debt Obligation: A credit guarantee protects the bank against loss, not the borrower. Where a borrower defaults, the guarantor settles the claim with the bank, but the debt is still owed to the guarantor. The borrower may face asset seizure, legal recovery, or ruined credit ratings in accordance with the terms of the loan.

Conclusion  

Loans in themselves are not disadvantageous to a business. Used well, they are important financial reliefs that allow individuals, businesses, and companies to grow, upgrade, and run their business without capital constraints.  Credit guarantee schemes can widen that access for Nigerian MSMEs, but business owners should note that qualifying for a scheme does not relieve the borrower of the loan. The borrower remains obliged to repay the lending institution as and when due, and where the guarantor settles a claim following default, recovery of the outstanding sum may still be pursued against the borrower. 

Furthermore, from a regulatory standpoint, to protect the independence of the guarantee and ensure the integrity of the scheme, it is important to note that CGCs cannot provide guarantee services to related entities or entities within its holding company structure, to entities outside Nigeria, and where it is indebted to the entity. (Clause 1.6 of the guideline) 

Business owners are therefore encouraged to read the terms of any credit facility carefully, understand the eligibility conditions and recovery rights, and seek legal advice before signing the fine print. Access to credit/loans is only a benefit when it is properly understood and executed.   

This newsletter is provided for general information purposes only and does not constitute legal, regulatory, or professional advice. While reasonable care has been taken in preparing this publication, readers are advised not to rely on its contents as a substitute for specific legal advice. Institutions and individuals are encouraged to consult their legal, compliance, or other professional advisers before acting on any information contained in this publication.