President Bola Tinubu is set to kick off a National Credit Guarantee System (NCGS) that will help bridge the $160 billion credit gap for micro, small, and medium enterprises (MSMEs).

The scheme announced during the president's New Year address will see the federal government act as a loan guarantor.

President Tinubu said in his address: "The federal government will establish the National Credit Guarantee Company to expand risk-sharing instruments for financial institutions and enterprises.

"The Company—expected to start operations before the end of the second quarter—is a partnership of government institutions, such as the Bank of Industry, Nigerian Consumer Credit Corporation, the Nigerian Sovereign Investment Agency, and Ministry of Finance Incorporated, the private sector, and multilateral institutions.

"This initiative will strengthen the confidence of the financial system, expand credit access, and support under-served groups such as women and youth. It will drive growth, re-industrialisation, and better living standards for our people."

How NCGS will work?

The com­pany is expec­ted to start oper­a­tions before the end of the second quarter. It is important that NCGC won’t hand out loans dir­ectly. Instead, it will vouch for MSMES, ensur­ing banks are con­fid­ent enough to lend. The federal government plans to put financial expert at the helm of the NCGC, and their job is to eval­u­ate busi­nesses, con­firm their loan eli­gib­il­ity, and issue guar­an­tees.
In return, busi­nesses will pay a premium based on their loan size.

BusinessDay reports that the National Insti­tute of Credit Admin­is­tra­tion (NICA), recom­men­ded ini­tial gov­ern­ment fund­ing of between N1 tril­lion - N2 tril­lion, with the pos­sib­il­ity of secur­ing inter­na­tional sup­port as the scheme grows.

The NCGC plans to offer a full 100% loan guarantee to reduce risk for lenders, ensuring banks’ participation.

In the event of a default, NCGC will shoulder the responsibilities, and Quick claim set­tle­ments will build trust, while clear guidelines will out­line when and how guar­an­tees can be invoked.