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Legal Alert June 2007 Bills of Sale Law
 
In this Issue:-
1. Business Quote for the Month
2. Legal News
3. Legal Alert for June 2007 – Bills of Sale Law
4. Subscribe & Unsubscribe to Legal Alerts.
5. Disclaimer Notice.
Business Quote for the Month
"Employ your time in improving yourself by other men's writings so that you shall come easily by what others have laboured for" – By Socrates.
Legal News
The Nigerian Extractive Industries Transparency Initiative (NEITI) Bill has been signed into Law in late May 2007. This Law gives legal effect to the quest for probity, accountability and transparency in the management of Nigeria's oil, gas and other mineral/natural resources. You can find more information about this Law and the regulating institution in the web site www.neiti.org
The increase in the VAT rate from 5% to 10% and the further increase in the prices of petroleum products in Nigeria led to strike actions in the middle of June, 2007. The Nigerian government has as a result of the strike actions reverted the VAT rate to 5% with a marginal concession made to the price of fuel which is also known in some countries as petrol. It remains our view that with proper public enlightenment, legislation and efficient restructuring of the tax collecting systems in Nigeria, a graduated increase in indirect taxes like VAT, especially for luxury goods, with an equally graduated reduction in the current direct taxes like Personal Income Tax, would expand equitably and significantly the tax collection base and revenues of the Nigerian government.
Another legal news in this month is the Lagos State Government's recent announcement of the establishment of a Bills of Sale Registry in Lagos, Nigeria. This Alert is an exposition of what the Bills of Sale Law means to you and your business.
Legal Alert – Bills of Sale Law
Introduction
A Bills of Sale Registry now exist in Lagos, Nigeria. This is in furtherance of the provisions of the Bills of Sale Law which makes provision for the execution, registration and effecting of Bills of Sale instruments.
Most business people and legal practitioners are however not very conversant or familiar with the practicalities of the provisions of the Bills of Sale Law. This Legal Alert is meant to be an introduction and a working guide to the provisions of the Bills of Sale Law of Lagos State with the necessity highlighted that you ensure that all Bills of Sale relating to your business are registered if they are to be upheld as applicable and enforceable legal instruments.
What is a Bill of Sale?
A Bill of Sale is a written instrument showing the voluntary transfer of a right or interest or title to personal property, either by way of security or absolutely, from one person to another person or persons without the actual physical possession of the property leaving the owner and being delivered to the other party.
A good example of a Bill of Sale is where a creditor gives a loan and has transferred to himself as collateral or security for the loan, the title of the goods or other personal property of the debtor. A creditor can in the event of a default in receiving payment seize the collaterised goods with the registered Bill of Sale as his authority for seizing the goods.
Applicability of Bills of Sale
The provisions of the Bills of Sale Law are only applicable to debtors who are private individuals. Creditors with debtors who are corporations or limited liability companies can not avail themselves of the protection of this Law.
A Bill of Sale remains a security for creditors against private individual debtors. This is because relief against debtors who are corporations or limited liability companies is already provided for in the Companies and Allied Matters Act which requires that all legal debentures – as opposed to Bills of Sale – must be registered at the Corporate Affairs Commission before they can be recognised as registered collaterals.
Non Applicability of Bill of Sale
Not all legal instruments are registrable under the Bills of Sale Law. Legal instrument that are used in the day-to-day ordinary cause of business are not accorded the status and protection of the Bills of Sale Law. Example of such instruments include marriage settlement instruments, assignment or transfer or lease of any ship or vessel or of any share in this kind of maritime property, bills of sale of goods in foreign countries or at sea, bills of lading, warrants or order for the delivery of goods or any documents used in the ordinary cause of business as proof of possession or control of goods.
Legal Form of Bills of Sale
A Bill of Sale is not necessarily required to be in a particular form although the law requires that it must be in writing and information that title to the described property has been transferred as collateral for credit must be stated in the Bill of Sale. Oral transactions are not accorded the protection of this Law as all Bills Of Sale must be in writing.
Registration of Bills of Sale
To prevent the secret transfer of property, fraud, and to promote confidence in commercial activities, the Bills of Sale Law mandatorily requires that all Bills of Sale must be registered. This is because non registration would amount to the Bill being declared null and void and of no effect.
Instruments recognised for registration under the Bills of Sale Law include all instruments assigning title to personal chattel, all transfers or declaration of trust without an actual transfer of possession, receipt of purchase of goods, power of attorney on chattel as security for a debt, any agreement by which a right in equity to any personal chattel or any charge or security on these chattel is conferred.
Most Bills of Sale are mandatorily required to be in writing, attested and registered with the Bills of Sale Registry within seven days after the execution of the Bill and its arrival in Lagos, where the Bill is posted from outside Lagos. With the exception of Bills of Sale as security for the payment of money, all other Bills of Sale must be attested to by a legal practitioner.
Any person is entitled, at reasonable times of the day, to search the Register at the Bills of Sale Registry on the payment of the prescribed fee for such information as he or she requires. Such a person is equally entitled to obtain an extract of any and every Bill of Sale registered upon the payment of the prescribed fees.
The registration of a Bill of Sale must be renewed at least once every five years.
Enforcement of Bill of Sale
The statutory grounds under which the personal chattel of a debtor covered by a Bill of Sale may be seized include:-
a. Default by the debtor in the payment of the sum owed under the Bill.
b. The debtor is declared bankrupt or insolvent and his assets detained by his creditors or such similar persons.
c. A Judgement is executed against the debtor and his goods.
d. The debtor fraudulently removes or permits the goods to be removed from the premises mentioned in the Bill of Sale without the consent or authority of the creditor.
e. The debtor, without reasonable excuse, fails to produce evidence of his last receipt(s) for rent, rates and taxes of the grounds and or the premises where the goods or chattel are harboured.
Goods that are seized under any of the above mentioned circumstances are not legally allowed to be disposed off for another five days after they are seized. This is to allow the grantor of the Bill of Sale the opportunity to challenge the seizure of its/his/her chattel on good grounds or to otherwise remedy the situation cumulating in the seizure.
Mutual Satisfaction
The application and possible enforcement of a Bill of Sale is extinguished whenever the parties mutually execute and file a memorandum of satisfaction which must be verified by a sworn affidavit attesting to the fact that the parties have discharged the terms and conditions of the Bill. Where however the consent of either party cannot be obtained to the discharge, a summons with proof of service of the summons on the opposite party may be heard by the Registrar of the Bills of Sale Registry, who may grant the relief on the summons and order if satisfied, that the memorandum of satisfaction be entered against the registered Bill of Sale and the encumbrance removed from the Register.
Conclusion
Bills of Sale are still not very familiar legal instruments because of the very long absence of a Bills of Sale Registry in Nigeria and also because of the onerous statutory restrictions and requirement for registration. While other legal forms are being used to secure these kinds of contracts, the risks of non-registration are now highlighted as a Bills of Sale Registry now exists in Lagos State. It is expected that with the existence of a functional registry, more awareness of the procedures would lead parties, their legal counsel and the Courts to look more closely at legal instruments that are Bills of Sale and declare such instruments void where they do not comply with the provisions of the Bills of Sale Law of Lagos State.
It is also expected that in the foreseeable near future, the Bills of Sale Law would be amended to among other things accommodate modern electronic business practices and remove technicalities in language and application.
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This Alert and others produced by us are provided without any charge to you. You can always subscribe to it, on behalf of other interested persons from whom you have their permission, by sending to us a one line e-mail with the words "Subscribe – Legal Alerts" followed by the desired email address.
You are equally permitted to terminate your subscription by sending to us a one line email with the words "Unsubscribe - Legal Alerts" and your electronic address would be removed from our list. In the future, you can return to our mailing list by visiting our web site www.oseroghoassociates.com to subscribe for the Legal Alerts.
DISCLAIMER NOTICE. This Legal Alert is a free educational material, for your general information and enlightenment ONLY. This Alert, by itself, does not create a Client/Attorney relationship.
Recipients are therefore advised to seek professional legal counselling to their specific situations when they do arise. Questions, comments, criticisms, suggestions, new ideas, contributions, etc are always welcomed.
This Legal Alert is protected by Intellectual Property Law and Regulations. It may however be shared with other parties provided that our Authorship is acknowledged always and this Disclaimer Notice is attached.
Legal Alert – May, 2007 – The ABC of Contract Law in Nigeria
 
In this Issue:-
1. Business Quote for the Month
2. Legal News
3. Legal Alert for May 2007 – The ABC of Contract Law in Nigeria.
4. Subscribe & Unsubscribe to Legal Alerts.
5. Disclaimer Notice.
Business Quote for the Month
"Take time to deliberate; but when the time for action arrives stop thinking and go in" – By Napoleon Bonaparte
Legal News
There are new developments in the economic and legal reforms of the Federal Government of Nigeria. A good example is the signing into Law of the Minerals and Mining Act, 2007. This Law, among others, gives power to the Regulator of this sector to grant licences, secure the tenure of licenses, and make regulations among other matters, in relation to mineral and mining matters in Nigeria.
Also, the Nigerian Intellectual Property Commission (NIPCOM) has been established in Nigeria. This Commission integrates the Trade Mark and Patent Registry of the Department of Commercial Law of the Federal Ministry of Commerce and Industry, with the Nigerian Copyright Commission, to form NIPCOM. NIPCOM would be under the direct supervision of the Federal Ministry of Justice. It is expected that the establishment of NIPCOM would lead to greater efficiency in the administration and management of all intellectual property matters in Nigeria.
The Nigerian Securities and Exchange Commission (SEC) recently announced an upward review in the minimum paid up capital for various category of operators in the Nigeria Capital Market. All capital market operators are required to meet these new minimum capital requirements on or before December 31st, 2008. You can visit the web site for SEC - www.sec.gov.ng - for more information.
The recapitalisation requirement has equally affected the aviation industry as some of the airline operators lost their operating licences after the deadline to increase their paid-up capital expired on April 30, 2007. The recapitalisation of the insurance operators is still going on as the Banks have not ceased to continue with their efforts to increase both their paid up capital and their sub-regional and global market share.
Legal Alert – The ABC of Contract Law In Nigeria.
Introduction:
Daily, people enter into contracts. While most of these contracts appear simple, disputes continue to arise on the exact rights and obligation of all the parties to the contract. In many cases, a party may be under the impression that there is a contract when there is none recognised and enforceable under the Law.
This Alert is to present to you some of the legal principles guiding contracts in a format that allows you to know whether there is a binding and enforceable contract between you and another party or parties. The concluding part of this Alert recommends that formal contracts or full documentation of contracts, where a formal contract is not possible for whatever reason, is preferred as it is a more secured way of doing business.
What is Contract?
A contract can be described as the legally binding agreement between two or more people which create obligations that when breached can be remedied in damages or by specific performance of the contract. See the Black's Law Dictionary.
A contract only exists when there is an agreement. It is impossible for one or two people to claim that they have a contract when there is no agreement or "mutuality" or the "meeting of the minds" between them.
A contract must have a bargain or benefit in exchange for something else. A gratuitous promise is not a legally binding contract.
Essential Ingredients of a Contract
a. An offer. An offer is a statement that is definite, certain and shows the clear intention to make the offer which when accepted becomes binding on the parties.
b. An Acceptance. This is a final, unequivocal and unqualified expression of assent to an offer.
c. Consideration. Consideration is a benefit or forbearance arising from an offer and an acceptance. Where there is no consideration but there is an offer and an acceptance, there is still no contract.
d. Intention to create legal relationship. The parties must intend that their agreement would be binding on them. Where this intention is absent, there can be no legally binding contract.
Discharge and Remedies for Breach of Contract
A contract can be discharged (a) by the performance of the purpose of the contract itself; or (b) by mutual rescission of the contract; or (c) by renunciation; or (d) by the purpose of the contract been illegal or by an amendment to existing laws which makes the purpose of the contract to be or become illegal; or (d) by voluntary relinquishment of contractual rights; or (e) by accord and satisfaction; or (f) by novation; or (g) by material alteration, etc.
In Law, to every wrong, there is always a remedy or compensation. As a result, there are many remedies for the wrongful repudiation of a contract. The two most common remedies are: -
a. Various types of damages like compensatory damages, punitive damages, exemplary damages etc.
b. Specific performance of the contract could be awarded where monetary compensation would be inappropriate or inadequate.
Conclusion:
Ultimately, formal agreements are preferred when compared with informal contracts. It is therefore recommended that you formalise all your agreements before incurring any forbearance or liability. Where executing a formal contract is not feasible for any reason, a comprehensive exchange of documentation on the various aspects of the contract would be of great assistance in the event of a dispute on any aspect of the contract.
Subscribe & Unsubscribe to Legal Alerts
This Alert and others produced by us are provided without any charge to you. You can always subscribe to it, on behalf of other interested persons from whom you have their permission, by sending to us a one line e-mail with the words "Subscribe – Legal Alerts" followed by the desired email address.
You are equally permitted to terminate your subscription by sending to us a one line email with the words "Unsubscribe - Legal Alerts" and your electronic address would be removed from our list. In the future, you can return to our mailing list by visiting our web site www.oseroghoassociates.com to subscribe for the Legal Alerts.
DISCLAIMER NOTICE. This Legal Alert is a free educational material, for your general information and enlightenment ONLY. This Alert, by itself, does not create a Client/Attorney relationship.
Recipients are therefore advised to seek professional legal counselling to their specific situations when they do arise. Questions, comments, criticisms, suggestions, new ideas, contributions, etc are always welcomed.
This Legal Alert is protected by Intellectual Property Law and Regulations. It may however be shared with other parties provided that our Authorship is acknowledged always and this Disclaimer Notice is attached.
Legal Alert April 2007 - Emails' Evidential Value Of In Nigeria
 
In this Issue:-
1. Legal Alert for April 2007 – Electronic Mails & their Evidential Value in Nigeria.
2. Subscribe & Unsubscribe to Legal Alerts.
3. Disclaimer Notice.
Legal Alert – Electronic Mails & Their Evidential Value In Nigeria.
The advent of the internet and the use of electronic mails (e-mails) have been an invaluable tool to humanity in promoting and advancing business and social life. At the same time, the internet and e-mails are also becoming a medium for various criminal activities deserving of your treatment of this medium with wisdom, some caution and circumspect.
It is a fact that many people negotiate their transactions via the internet without been aware that correspondence or communications exchanged via the internet may not on their own alone be conclusive neither are they by themselves alone, admissible in a Court of Law should a dispute arise in relation to them. This is particularly true of Nigeria where there is no specific legislation on the admission of electronic mails in civil or criminal proceedings and where the rigid rules discouraging the admission of secondary and hearsay evidence have not been relaxed.
This Legal Alert is therefore meant to assist you with background information on how to manage and secure the admission of your electronic mails.
Admission of Documents in Evidence in Nigeria
Under the Nigerian Evidence Act, only the original document, in hard copy form, which is relevant to the subject matter of the dispute and which is pleaded by a party, is admissible in evidence. Where the original document is not available or is lost or is part of a larger document that cannot be conveniently moved to Court, a clear and true authenticated copy that is not forged may be admitted if prior convincing oral evidence is given to show that the original document in fact exist or existed and that it is not available for good reason.
Secondary evidence, of which electronic mails arguably belong to, may also be admitted under Nigerian Law where (i) its existence has already been admitted by the opposite party; (ii) notice to produce the original document is given and the original is still not produced; (iii) the original is a public document; (iv) the original is an entry in a Banker's Book; etc.
Evidential Value of Electronic Mails Globally
The challenge with electronic mails is that in the hands of a criminally minded individual or individuals, they can be forged in part or parts or in the whole document. The delivery/transmission of electronic mails can equally be deliberately manipulated or disrupted by unauthorised and or unknown persons.
All electronic mails fortunately leave an electronic digital trail that can be audited by experts in this area. The digital trail usually should contain information about the sender of the mail, the service providers and the server(s) from which the mail originates and terminates, the time zones of the sender and the recipient, among other information. In spite of the availability of digital trails for electronic mails, electronic mails are still open to unauthorised interference from criminally minded persons with the necessary skills.
Some countries already have national legislations - on the treatment of electronic mails – or have adopted the United Nations Electronic Transaction Act (UETA) or the European Union Electronic Signatures Directives or the South African Computer Evidence Act for civil proceedings or the Amended Criminal Procedure Act for criminal proceedings. These various legislations permit the admission of electronic mails in these countries and ascribe to electronic mails the same evidential value that hard copy documents are given.
Conclusiveness of Electronic Mails?
Where however the authenticity of an electronic mail is challenged, most of the above legislations require that the party relying on the electronic mail must provide scientific data which proves beyond all reasonable doubt that the electronic mail was sent and received by the opposite party.
The requirement for proof of delivery of electronic mails beyond all reasonable doubt is an onerous burden, which you can mitigate against by you ensuring that hard copies of your agreements are also exchanged with the opposite party in the transaction.
Conclusion
There is no Law on the direct admission of electronic mails in Nigeria. It is doubtful if electronic mails by themselves alone can be tendered and admitted in evidence under Nigerian Laws or rules of Court on procedure without rigorous objections from the opposite party. Such objection would cause further delays and costs to an already very expensive litigation process.
Other corroborative evidence like the subsequent affirming conduct of the parties, exchange of consideration or value, admission of the transaction in another medium, etc may be provided in order for an electronic mail to be admitted in evidence in a Nigerian Court. In spite of this possibility and the onerous standard of proof, we strongly recommend that all your transactions concluded by means of electronic mail should be followed-up immediately by a hard copy agreement or correspondence duplicating and affirming the electronic agreement.
You may also consider an investment in various software programs which claim to secure the transmission of your mails and provide you with electronic evidence that the mail was sent and delivered and or received by the intended recipient. Some of these software programs are on electronic signatures/digital seals, registered email (RPOST), etc. There is no conclusive evidence however that these softwares' are full-proof from interference of electronic mails by unknown and unauthorised persons.
Ultimately, when doing business in Nigeria, always transcribe your electronic mails to hard copies and always obtain physical acknowledgement on delivery of the hard copy.
Subscribe & Unsubscribe to Legal Alerts
This Alert and others produced by us are provided without any charge to you. You can always subscribe to it, on behalf of other interested persons from whom you have their permission, by sending to us a one line e-mail with the words "Subscribe – Legal Alerts" followed by the desired email address.
You are equally permitted to terminate your subscription by sending to us a one line email with the words "Unsubscribe - Legal Alerts" and your electronic address would be removed from our list. In the future, you can return to our mailing list by visiting our web site www.oseroghoassociates.com to subscribe for the Legal Alerts.
DISCLAIMER NOTICE. This Legal Alert is a free educational material, for your general information and enlightenment ONLY. This Alert, by itself, does not create a Client/Attorney relationship.
Recipients are therefore advised to seek professional legal counselling to their specific situations when they do arise. Questions, comments, criticisms, suggestions, new ideas, contributions, etc are always welcomed.
This Legal Alert is protected by Intellectual Property Law and Regulations. It may however be shared with other parties provided that our Authorship is acknowledged always and this Disclaimer Notice is attached.
Legal Alert – The ABC of Value Added Tax in Nigeria
 
In this Issue:-
1. Legal Alert for March 2007 – Value Added Tax Law in Nigeria.
2. Subscribe & Unsubscribe.
3. Disclaimer Notice.
Legal Alert – The ABC of Value Added Tax in Nigeria.
The administration of tax systems and the enthronement of a tax payment culture nationally continue to challenge successive governments in Nigeria. One of the attempts to expand the tax net with minimum resistance and also to reduce tax evasion so that most of the tax income would get to the Nigerian government is the introduction of VALUE ADDED TAX in Nigeria in 1993. This Tax is a replacement for the old Sales Tax which had a very narrow field of goods to which this tax could be charged.
Many businesses however are unaware of how the VAT system in Nigeria operates. In some cases, upfront deductions for VAT are made from income due to suppliers of goods and services without proper remittances being made to the government. This Alert is our educational contribution to assist your business in this area of the Law.
What is Value Added Tax?
Value Added Tax (VAT) is a consumption tax on the supply of goods and services. It is an indirect tax designed in the manner of a final tax liability on the final consumer of goods or services.
How does VAT Work?
To arrive at the VAT rate that is payable by you on each transaction, you must determine what your out VAT is and what your input VAT is.
An input VAT is the VAT on goods or services purchased by you for which VAT was added and the VAT charge remitted to government. An output VAT on the other hand is VAT on goods or services that you supply to others for which you must equally add the VAT charge and remit this charge to the Government.
To arrive at the final VAT rate payable, you simply subtract your input VAT from your output VAT at the end of each calendar month. Where the input VAT - outside VAT payments by you - exceeds the output VAT - VAT payments collected and remitted by you to the government - you are entitled to apply for a VAT refund from the Federal Inland Revenue Service (FIRS). In practice, the refund may not be made in cash but can be transferred as a credit against your next VAT return.
What is the Rate of Charge as VAT?
The VAT rate is 5% on all taxable goods and services.
Any Goods or Services Exempted from VAT?
Not all goods or services are liable to pay VAT. The following are exempted from paying VAT: -
• All exports
• All medical and pharmaceutical products
• Basic food items
• Baby products
• Fertiliser, locally produced agricultural and veterinary medicine, farming machinery and farming transportation equipment.
• All plants, machinery or equipment purchased for utilization of gas in downstream petroleum operations
• Plant and machinery for use in the export processing zones.
What are the VAT offences and Penalties?
There are various offences and penalties for not complying with the provisions of the VAT Law. The penalties vary from the payment of monetary fines to paying two times the amount that ought to have been paid as VAT.
The most severe offence appears to be the failure to collect tax by a taxable person. The penalty is a fine equivalent to 150% of the uncollected tax plus a 5% interest surcharge above the Central Bank of Nigeria rediscount rate. Terms of imprisonment include 3years for tax evasion, 6months imprisonment with a fine for resisting, hindering or obstructing the VAT administration, etc.
Acknowledgment for this Legal Alert.
For more information on VAT administration in Nigeria, please consult your Tax Adviser or FIRS General Tax Guide for Tax Administration & Practitioners or the nearest VAT office.
Subscribe & Unsubscribe to Legal Alerts
This Alert and others produced by us are provided without charge to you. You can always subscribe to it, on behalf of other interested persons from whom you have their permission, by sending to us a one line e-mail with the words "Subscribe – Legal Alerts" followed by the desired email address.
You are equally permitted to terminate your subscription by sending to us a one line email with the words "Unsubscribe - Legal Alerts" and your electronic address would be removed from our list. In the future, you can return to our mailing list by visiting our web site www.oseroghoassociates.com to subscribe for the Legal Alerts.
DISCLAIMER NOTICE. This Legal Alert is a free educational material, for your general information and enlightenment ONLY. This Alert, by itself, does not create a Client/Attorney relationship.
Recipients are therefore advised to seek professional legal counselling to their specific situations when they do arise. Questions, comments, criticisms, suggestions, new ideas, contributions, etc are always welcomed.
This Legal Alert is protected by Intellectual Property Law and Regulations. It may however be shared with other parties provided that our Authorship is acknowledged always and this Disclaimer Notice is attached.
Legal Alert – January 2007 – Micro Finance In Nigeria
 
In this Issue:-
1. Subscribe & Unsubscribe to Legal Alerts.
2. Business Quote of the month.
3. Legal Alert January 2007 – Micro finance in Nigeria.
Subscribe & Unsubscribe to Legal Alerts
This Alert and others produced by us are provided without charge to you. You can always subscribe to it by sending to us a one line e-mail with the words "Subscribe – Legal Alerts"
You are equally permitted to terminate your subscription by sending to us a one line email with the words "Unsubscribe - Legal Alerts" and your electronic address would be removed from our list. In the future, you can return to our mailing list by visiting our web site www.oseroghoassociates.com to subscribe for the Legal Alerts.
Business Quote.
"If we were meant to talk more than listen, we would have Two Mouths and One Ear" – By Mark Twain
Legal Alert - January 2007 - Microfinance in Nigeria
Introduction.
Modern economies rely on small and medium scale industries to serve as the foundation for the continuing growth of their economies. In Nigeria, small and medium scale industries have been unable to grow as a result of the non availability of affordable credit facilities from existing financial institutions, and lack of minimum public utilities and infrastructure like regular power supply, roads, certainty in tax liabilities and collection, security of lives and properties, health care delivery, etc.
The effort of the regulatory Bank in Nigeria to remedy the above credit problem by having Nigerian banks mandatorily contribute a portion of their profits to fund small and medium scale industries have equally failed because of:
a. Lack of appropriate institutional framework and documentation for micro finance businesses.
b. Lack of confidence between the formal Banks and the informal small and medium scale proprietors (SME).
c. Absolute ownership culture by SME owners which discourages venture capital entrepreneurs and commercial Banks entering into short term partnerships with SMEs.
d. High interest rates due to short term money market.
e. Allegation of insider dealings by Banks under the Small & Medium Enterprises Equity Investment Scheme as a result of the problems enumerated in items (a) to (d) above.
The failure of the SMEEIS (Small and Medium Enterprises Equity Investment Scheme) has led the Central Bank of Nigeria (CBN) to introduce and regulate the establishment of Micro Finance Banks in Nigeria in a further effort to remedy some of the problems enumerated above.
What is Micro Finance?
Micro Finance is the process of extending small and short term collateral–free loans and other financial services to small business owners that are unable to access these same services from the formal financial lending institutions.
What is a Micro Finance Bank?
A Micro Finance Bank (MFB) is described by the Micro Finance guidelines issued by the CBN as any company licensed by the Central Bank of Nigeria to carry on and provide financial services such as opening and maintaining savings accounts, granting short term collateral-free loans, offering domestic money transfer services, and providing other financial services to small income earners, small and medium scale entrepreneurs, etc.
Types of Micro Finance Banks in Nigeria
1. Micro Finance Banks licensed to operate within a local government area and restricted to that area. This type of Micro Finance Bank must have a capital base of N20Million.
2. Micro Finance Bank licensed to operate in a State with branches only in that State. This type of Micro Finance Bank must have a capital base of N1Billion.
A MFB must obtain an additional licence in order for it to be able to operate in another Local Government Area or State not designated in the original licence of the MFB.
Maximum Credit & Tenor of Credit
Presently, the maximum amount that a MFB can extend to a client is N500,000 (Five Hundred Thousand Naira). The maximum tenure of a Micro Finance loan is 180 days or 6 months. For agricultural crops, the maximum tenor for repayment is 12months.
Prohibited Businesses of a MFB
a. Dealing in land for speculative purposes and real estate business that is not for the MFB's office accommodation.
b. Credit facilities for speculative purposes.
c. Direct cheque clearing activities.
d. Foreign exchange and International commercial activities.
e. Corporate finance.
f. Any commercial activity that involves speculation in its dealing.
Tax Treatment of MFBs
The guidelines regulating Micro Finance Banks provides for exemption from companies income tax, of the profits of a MFB, if and only if the MFB does not distribute its net surplus among its shareholders but reinvest the profits by extending them as credit to its Customers.
Advantages of MFBs
1. Collateral-free loans to small scale entrepreneurs.
2. Networking opportunities for business counseling, mentoring and advise.
3. Peer support among members of a MFB, in good times and bad times.
4. Client friendliness and simplicity of operation of MFBs.
5. Deposits with MFBs are covered by insurance provided by the National Deposit Insurance Corporation (NDIC).
Possible Disadvantages of MFBs
1. High Interest Rates because of their collateral-free and short term nature.
2. Poor repayment culture to credit facilities by SME entrepreneurs; some SME operators may misunderstand MFBs loans to be their share of the national treasury.
3. Insufficient education among operators of MFBs on the differentiation between MFBs and regular Commercial Banks.
4. Lack of a credit bureau/data Bank to monitor small business owners with poor credit ratings and abuse of credit from MFBs.
Conclusion
The successes of Micro Finance Institutions in Nigeria without equal advancements in energy/power supply, roads, education, health care, security, etc. would not eradicate or reduce poverty. Equally disturbing is the high profile of the operators of MFBs who perceive their institutions as secondary players to the larger commercial Banks.
It is expected that continuing enlightenment support and enforcement by the regulator, CBN, on what MFBs are meant to do and achieve, and unreserved punishment for violators of MFBs guidelines would improve the medium to long term conditions of MFBs in Nigeria.
DISCLAIMER NOTICE. This Legal Alert is a free educational material, for your general information and enlightenment ONLY. This Alert, by itself, does not create a Client/Attorney relationship.
Recipients are therefore adviced to seek professional legal counsel to their specific situations when they do arise. Questions, comments, criticisms, suggestions, new ideas, contributions, etc are always welcomed.
This Legal Alert is protected by Intellectual Property Law and Regulations. It may however be shared with other parties provided that our Authorship is acknowledged always and this Disclaimer Notice is attached.