The Central Bank of Nigeria has issued a series of new guidelines to govern how a holder of a fintech license in Nigeria may combine it with other types of fintech licenses in a holding company structure.
Under the new rules, termed “GUIDELINES FOR LICENSING AND REGULATION OF PAYMENTS SERVICE HOLDING COMPANIES IN NIGERIA”, companies that wish to operate under more than one license category must establish a Payments Service Holding Company (PSHC) with clearly defined subsidiaries.
One notable feature of the new rules is that fintech companies in Nigeria, under a holding company structure, can now acquire controlling stakes in Nigerian financial companies, including fund managers, loan and credit companies, money brokerage companies, etc.
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More specifically, CBN provides under Section 2.3 of the new rules that a Payment Service Holding Company (PSHC) is permitted to have only two hierarchies.
“Given the permissible level of hierarchies, the PSHC may have a subsidiary which is a parent to another subsidiary (intermediate company),” the new rules state.
“A PSHC may acquire controlling interest in any permissible financial and/or technological company, subject to prior approval of the CBN, where controlling interest represents a minimum of 51% of authorised share capital of the entity,” the rules add.
The Implications of The New Rules
The new rules imply that it is now possible for fintech companies in Nigeria to acquire controlling stakes in financial companies and expand the scope of their operations in the country. However, the key words from the latest guidelines are “any permissible financial…company… subject to prior approval of the CBN,” meaning that the CBN holds the decisive power to determine whether this is possible or not, and the extent of it.
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Nevertheless, it remains unclear if instead of fintech companies in Nigeria relying most commonly on microfinance licenses to launch their operations in the absence of any of the payments licenses, they could now structure themselves under a holding company structure, permitting them to include traditional banks in their portfolios.
But then, again, the new rules are more particularly true for fintechs focused on mobile money operations, switching and processing or payment solution services.
The latest guidelines may be the much needed respite for mobile money operators in Nigeria. Under the CBN’s recently introduced rules for mobile money operations in Nigeria, holders of mobile money license are forbidden from undertaking activities, including granting any form of loans, advances and guarantees (directly or indirectly); accepting foreign currency deposits; dealing in the foreign exchange market except as prescribed in Section 4.1 (ii & iii) of the extant Guidelines for Licensing and Regulation of Payment Service Banks in Nigeria; insurance underwriting; accepting any closed scheme electronic value (e.g. airtime) as a form of deposit or payment.
The latest rules could now permit them, subject to CBN’s approval, to acquire companies doing any of the above activities under a holding company structure.
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Although it is possible, before now, for companies in Nigeria to own stakes in Nigerian banks, the latest rules give new impetus to fintechs to make outright acquisitions of more financial companies in Nigeria, which could be a strategic way of increasing their product offerings above the limits permissible under the law in each case.
How Many Subsidiaries Must A Fintech Holdco Have To Be Approved By CBN?
- According to the central bank, any fintech holding company must have at least two subsidiaries, which comprise a Mobile Money Operator (MMO) and a Switching firm, before it can be regarded as a Payments Service Holding Company.
- Whatever activities conducted under this arrangement — whether the holdco desires to hold controlling interests, that is 51% or more of another fintech company or financial institution or simply to change back into a single license — requires the approval of the central bank.
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Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer