Banking & Finance 2019 Second Edition

Last Updated September 10, 2019


Law and Practice


Sefton Fross is a full-service commercial law firm in Lagos, Nigeria, known for its expertise in banking and finance matters, including energy finance, debt capital markets, corporate finance, project finance, structured finance, derivatives, and trade finance. The firm’s banking and finance practice is made up of a team of 11 lawyers led by managing partner, Olayemi Anyanechi. Sefton Fross provides legal advice on financing transactions to private and public limited companies, private equity firms, local and international banks, export credit agencies, multilateral and development finance institutions and government agencies. It has advised on some of the largest banking and finance transactions in Nigeria since its inception, including cross-border financings and cutting-edge Islamic finance transactions.

Nigeria experienced five consecutive quarters of negative growth between 2016 and 2017, spurred by the decline in the international oil price and disruptions to domestic crude oil production. Being a primarily import-based economy, the recession affected Nigerian businesses’ easy access to foreign exchange for international trades. As a result, the Central Bank of Nigeria (CBN) instituted a policy of restricted access to foreign exchange and thereby banned certain imported items from access to the foreign exchange market.

This had a ripple effect on the business and banking sectors, as Nigerian banks could no longer open letters of credit for many importers. This, however, resulted in the incursion by alternative credit providers in traditional trade finance and other markets which were traditionally occupied by banks. These alternative credit providers both financed businesses and provided the much-needed foreign exchange for international trade.

The Nigerian lending market has, therefore, seen a rise in trade finance, structured finance and derivatives finance, which has filled the gap left by the reduction of lending activities from traditional sources. For example, in the past, institutional lenders project financed much of the acquisition and development of oil and gas assets in Nigeria. Recently, however, many of these assets are financed using forward-sale contracts and pre-export financing.

Since the second quarter of 2017, the economy has witnessed positive but slow growth due to moderate international oil prices and a more transparent exchange rate policy, as well as higher growth in the critical non-oil sector including in agriculture, manufacturing, information, communication and trade.

The CBN’s financial policy generally involves the use of intervention funds, maintaining a low interest rate and increasing financial inclusion.

The high-yield market does not play a significant role in Nigeria and does not affect financing terms and structures. This is because not only does the CBN’s 2010 Prudential Guidelines for Deposit Money Banks require that customers seeking credit facilities provide information concerning the pledged security attached to such facility, the 2013 Rules and Regulations of the Securities and Exchange Commission (SEC), which governs the issue of securities to the public also requires that the credit rating for bonds issued to the public must not be below investment grade.

The Nigerian lending market has seen an increase in alternative credit providers, including private equity funds, oil traders and FinTech companies. These alternative credit providers are providing easy access to financing, on terms that are more accessible than traditional lending platforms, which has resulted in a significant growth in the lending space, giving more Nigerians access to financial products. However, the interest amortisation rates for these alternative credit financings are often higher than those provided by traditional lenders because of the high level of risk involved.

There has also been a rise of alternative financiers providing access to foreign exchange as a result of the CBN’s restrictions following from the recession of 2016. Please see above, 1.1 Impact of Regulatory Environment and Economic Cycles.

The drive towards increased financial inclusion for Nigerians has allowed non-banks to enter into the financial services industry and provide credit to Nigerians, including FinTech and telecommunications companies. One of Nigeria’s biggest telecommunications providers, MTN Nigeria was recently granted a Super Agent Licence by the CBN, through its subsidiary Yello Digital Financial Services Limited. This licence enables MTN to distribute financial services to all Nigerians and launch its FinTech products in the Nigerian market.

The rise of alternative financing structures has seen derivatives financing and forward sales as more relevant structures in banking and finance in Nigeria.

CBN recently issued new requirements for commercial banks to maintain a minimum loan-to-deposit ratio of 60% by September 2019, in order to encourage small and medium enterprises (SMEs), retail, mortgage and consumer lending, which would further increase the lending market and access to financing from traditional lenders in Nigeria. This, we believe, will increase bank lending with its consequent impact on the loan market in Nigeria.

CBN also recently reviewed upward the minimum capital requirement for microfinance banks operating in Nigeria and gave a two-year period for the banks to meet the final capital requirements. It also recently released regulations and guidelines for payment service banks in Nigeria. These are part of the CBN’s effort to enhance access to financial services for the unbanked and underbanked, especially in rural areas of the country.

There are little or no requirements and procedures for banks and non-banks to be authorised to provide financing to a company organised in Nigeria, to the extent that the financier is providing the finance from outside Nigeria and not deemed to be carrying on business in Nigeria.

However, for a bank or non-bank entity to carry on the business of lending in Nigeria, it must have either a banking licence (if a bank) or a financial institution licence (if a non-bank financial institution) issued by the CBN under the Banks and Other Financial Institutions Act, B3 Laws of the Federation of Nigeria (LFN), 2004 (BOFIA). These licences are issued upon application to the governor of the CBN accompanied by the required documents.

The State Money Lenders Law also applies to certain persons in the business of moneylending who are not regulated under BOFIA. The law requires that every moneylender must hold a moneylender’s licence issued under the relevant state law and renewed annually. Such a moneylender licence would, however, have operational rights within the jurisdiction of the relevant state.

Foreign lenders are not in any way restricted from granting loans in Nigeria. However, foreign lenders do need to abide by the requisite local regulations in order to be engaged in the business of granting loans in Nigeria.

There are no specific restrictions against granting security or guarantees to foreign lenders. However, the granting of security to foreign lenders is subject to the general perfection requirements that are applicable to the provision of security generally. Where the security in question is such that is registrable under the Companies and Allied Matters Act, C20 LFN 2004 (CAMA), the instrument creating the security must be stamped at the applicable rate under the Stamp Duties Act, S8 LFN 2004, and registered with the Corporate Affairs Commission.

Where the security is a legal mortgage over land, the consent of the governor of the state where the land is situated is also required, to ensure the mortgage is valid and enforceable at the time of its creation. The mortgage instrument must also be filed at the relevant Land Registry. Where the security is a charge over dematerialised shares, a notice of the charge must be given to the Central Securities Clearing System to record the chargor’s interest over the shares. For securities issued by the Nigerian Federal Government, notice of the security is given to Scripless Securities Settlement System.

Foreign entities are unable to hold land directly in Nigeria – where the security package includes land, they must appoint a Nigerian entity to act as a security trustee and to hold the security interest over such land.

Nigerians are generally free to give guarantees to foreign lenders. However, Nigerian banks must seek the consent of the CBN before giving a guarantee to a foreign lender, other than in the case of bank deposits in the ordinary course of business. Ministries and agencies of the Federal Government must receive approval from the Federal Executive Council before issuing any guarantees.

Generally, Nigeria is not considered to have any foreign exchange controls or restrictions. However, since 2015, the CBN has instituted a policy of excluding importers of certain items from accessing foreign exchange at the official Nigerian foreign exchange markets. Please see 1.1 Impact of Regulatory Environment and Economic Cycles, above.

Nigeria also operates a foreign currency exchange system with multiple foreign exchange rates including the CBN’s official exchange rate, interbank rate, importers and exporters (I&E) window, and the black-market rate.

Repatriation of principal and interest to a foreign lender is regulated under the Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, Chapter F34 LFN 2004 (FEMMPA). Under the law, foreign lenders are entitled to a Certificate of Capital Importation (CCI) in respect of funds provided to a Nigerian borrower. CCI is issued by an authorised dealer (usually a Nigerian bank or financial institution) acknowledging that forex has been brought into Nigeria. The CCI guarantees repatriation of the loan and interest and recoveries from any secured asset upon enforcement. The CCI grants the lender access to the CBN Foreign Exchange Market where the Nigerian currency, the naira, is converted to foreign exchange for repatriation offshore in line with the lender’s requirements.

There are no regulatory restrictions on the borrower’s use of proceeds from loans or debt securities. However, the borrower’s constitutional documents and the loan documents may restrict its use of proceeds.

It is important to note, however, that a borrower is restricted from obtaining loans to finance operations or businesses listed in the "Negative List" – ie, the list of sectors prohibited to both Nigerian and foreign investors, including the production of arms and ammunition, the production of and dealing in narcotic drugs and psychotropic substances, the production of military and paramilitary wears and accoutrements and such other items as may be determined by the Federal Executive Council.

Agent and trust concepts are recognised under Nigerian law. Under these concepts, in a syndicated lending situation (or lending by a foreign institution where security includes legal mortgage on land), a security trustee or agent is appointed to hold security in trust for and on behalf of the lenders. Trust accounts are also used to deliver proceeds of payment to and from the borrower and the syndicate members. A facility agent, recognised under Nigerian law, may also be appointed as a representative of the lenders and would administer the facility, by managing the receipt of interest and principal payments from the borrower and disbursing them to the members of the syndicate, monitoring performance by the borrower of its obligations under the facility agreements and acting as liaison between the lenders and the borrower.

The loan transfer mechanism recognised in Nigeria are assignment, novation and sub-participation.

  • under an assignment, a lender may transfer its part of its rights and benefits under a loan agreement to a new lender, while retaining its obligations under the agreement;
  • under a novation, an existing lender may transfer all its rights and obligations under the loan agreement to a new lender, thereby ceasing to be a party to the loan agreement and substituting the existing loan with a new loan agreement between the borrower and the new lender;
  • under a sub-participation, a lender may enter into an agreement with another lender to share its risks and benefits under the loan agreement with the other lender. Here, the new lender does not take on the obligation of the existing lender but may be entitled to receive all or part of the interest and principal repayment.

The loan agreement usually provides for the terms upon which a lender or a borrower may be changed or the benefits or obligations under the agreement may be transferred. In syndicated transactions, a third-party debt-buyer must accede to the existing security document and follow the procedure set out in the transaction documents. In sub-participation, a third-party buyer only has access to security through the selling lender, as the borrower may not be aware of the sale of the selling lender’s interest to a third party.

Security may be transferred by a deed of variation/novation in which the secured party is substituted with another entity. Any such change must be reflected at any registry where the original security was registered by means of a supplemental trust deed.

There are no restrictions to debt buy-back in Nigeria, and such would be subject to the terms of the facility/loan document. Facility agreements, however, typically include provisions for voluntary prepayment of all or part of the loan, with or without penalties.

The Securities and Exchange Commission’s regulation of public acquisitions requires that applications made to the Commission for approval must clearly disclose the sources of funds to be used to finance the acquisition and must be accompanied by documentary evidence of those sources. Long form documentation is commonly used for public acquisitions, and copies of the sale and purchase agreement must be filed with the Securities and Exchange Commission (SEC). The need for certainty of funds is also prevalent even in private acquisitions, and sellers would typically request evidence of proof of funds.

Interest payments made to lenders are subject to withholding tax at the rate of 10% under the Companies Income Tax Act, C21 LFN 2004 (CITA). However, interests payable on foreign loans enjoy special tax exemptions under the 3rd Schedule to the CITA. These tax exemptions are based on the loan repayment period. At the highest end, for loans with repayment periods exceeding seven years, the tax exemption is 100% during the two-year grace period. Principal payments are not subject to withholding tax. Interest earned by holders of corporate and government bonds and short-term securities issued by the Federal Government of Nigeria are currently exempted from withholding tax under the Personal Income Tax Amendment Act, 2011, the Companies Income Tax Exemption Order 2011 and the Value Added Tax (Modification) Order 2011.

The following are the relevant taxes, duties, charges or tax considerations lenders must consider when making loans to Nigerian companies.

  • Stamp duty – stamp duties are payable on documents executed in Nigeria, or documents not executed in Nigeria which relate to a thing or matter to be done in Nigeria.
  • Registration fees – certain security documents are required to be registered at the Corporate Affairs Commission (CAC), with fees payable upon registration. Registration fees are 1% and 2% of the secured amount for private and public companies, respectively.
  • Central Securities Clearing System Plc (CSCS) registration fees – where shares subject to security are dematerialised and held with the CSCS, a registration fee is payable at 0.25% of the total market value of the charged securities.
  • Filing or registration fees at the relevant registry – where the security includes properties such as land or ship, registration fees are payable at the relevant registry. These fees are based on the loan amount and depend on the relevant registry.
  • Registration fees of NGN1,000 on financing statements creating security over any movable asset at the National Collateral Registry.
  • Consent fees for the governor’s consent where the charge is a mortgage over land.
  • Consent fees for the minister’s consent in transactions concerning oil leases and licences.
  • Consent fees for registrar of ships’ consent on transactions concerning ships or vessels.

There are generally no usury laws in Nigeria. However, the Money Lenders Law for each state in the country regulates the amount of interest charged by money lenders or other persons regulated under those laws.

There are no limitations to the assets that can be subject to security. Both tangible and intangible assets can be subject to security. The forms of security would typically depend on the nature of the assets and typically include legal and equitable charges or mortgages, fixed and floating charges, assignment by way of security, pledges, liens, hypothecation and trusts.

Real Estate

Security over real property is usually granted by way of either a legal or an equitable mortgage or charge. A legal mortgage over land involves a transfer of legal title to the property by the mortgagor to the mortgagee, as security for the payment of debt or discharge of some other obligation. This transfer is subject to the condition that the title is re-conveyed to the mortgagor upon repayment of the debt or when the obligation is discharged. A legal mortgage is usually created by a deed. Perfection of legal mortgages require that the mortgage instrument be stamped, the consent of the governor of the state where the land is situated be obtained and that the mortgage instrument be registered at the state’s Land Registry.

An equitable mortgage over land is created by the borrower depositing the title deeds to the property with the lender, with or without a memorandum of deposit. However, where under a legal mortgage, a lender is immediately entitled to the property, an equitable mortgage creates a personal right against the mortgagor, which is only exercisable upon the issuance of a court order.

A company may grant a charge over its real property. Charges over real estates are interests in land that do not transfer title in the property but simply operate as a security interest or a lien created in favour of the chargor, which may be enforced upon the occurrence of specified events.

Charges over land must also be registered at the Corporate Affairs Commission (CAC).


A security over the shares of a company is usually created by way of a charge, which may be legal or equitable. 

A legal mortgage of the shares of the company involves a transfer of title to the shares with an undertaking that the shares will be re-transferred to the mortgagor following the discharge of the secured obligations. Therefore, perfection requirements include the entry of the mortgagee’s name as a shareholder in the company’s register of members.

An equitable mortgage of shares is granted when the relevant share certificates are deposited with the security holder with or without a memorandum of deposit. The chargor also typically deposits executed but undated blank share transfer forms in respect of the charged shares, with the intention that the charger will date the transfer forms, and complete with the name of the transferee on enforcement. The article of association of private companies would, in most instances, require the consent of the board of directors of the target company to the transfer of its shares, hence it is desirable that this consent be obtained at the time of the creation of the charge, where applicable.

Share charges are not required to be registered at the CAC. However, where the shares have dematerialised, notice of the charge must be delivered to the CSCS.

Tangible Property: Receivables, Financial Instruments, Cash, Intellectual Property, Plant, Machinery, Equipment, Ships and Aircrafts

Under CAMA, a company may create a fixed or a floating charge over its property and undertaking. A fixed charge is created over specific property of a chargor and attaches to the property from the time of its creation. A fixed charge may also be created over future property, in which case the charge attaches as soon as the property comes into existence or becomes the property of the chargor. Under a fixed charge, the charger may not deal with the charged asset without the consent of the chargee. A floating charge on the other hand is ambulatory in nature and the chargor may continue to deal with the subject matter of the charge until the floating charge “crystallises” and the charge becomes a fixed charge. "Crystallisation" occurs on the occurrence of certain events agreed between the charger and the charge, which may include the occurrence of an event of default or appointment of a receiver over the assets of the borrower. 

A security over patents, trade marks, copyright and designs is usually granted by way of a fixed charge or an assignment by way of security, as well as by a mortgage or a floating charge. Rights arising under a contract are charged by an assignment by way of security in favour of the security holder, which includes a provision for re-assignment upon the discharge of the secured obligations. Security over other tangible assets such as plant, machinery, equipment, ships, aircrafts and other tangible property may be granted by way of a mortgage, charge or a pledge. A pledge of any such asset involves the deposit of the tangible moveable asset with the secured party/lender as security for the secured obligations, and on the condition that the assets will be returned to the pledgor after the secured obligation has been discharged.

The prior consent of the Minister of Transport is required for the creation of a valid and enforceable mortgage over a ship or vessel that is registered in Nigeria. A mortgage or charge over an aircraft, ship or vessel must be registered with the CAC and at the National Collateral Registry, as well as at the Nigerian Maritime Administration and Safety Agency (in the case of a mortgage over a ship or vessel) or the Nigerian Civil Aviation Authority (in the case of a mortgage over an aircraft). Mortgages over Nigerian registered ships and vessels must also be registered at the Nigerian Ship Registration Office.

A charge over a company’s receivables are registrable at the CAC. A charge over a company’s intellectual property is registrable at the Trademarks and Patent Registry, as well as at the CAC. Charges over financial instruments are registrable at the relevant depositary where they are held: in the case of corporates, at the CSCS.

Nigerian law permits a floating charge over all present and future assets of a company. A floating charge requires registration at the CAC under the CAMA.

It is possible for Nigerian entities to give downstream, upstream and cross-stream guarantees. There are no associated limitations or restrictions to these guarantees beyond those provided for under contract and under the constitutional documents of the relevant company, save that such guarantee is typically required to be in the best commercial interest of the guarantor.

Under Nigerian law, a target is restricted from granting guarantees or security or financial assistance for the acquisition of its own shares.

According to Section 159 CAMA, where a person is acquiring or is proposing to acquire shares in a company, it is unlawful for the company or any of its subsidiaries to give financial assistance directly or indirectly for the purpose of that acquisition before or at the same time as the acquisition takes place. Further, where a person has incurred liability in the acquisition of shares in a company, it is unlawful for the company or any of its subsidiaries to give financial assistance directly or indirectly for the purpose of reducing or discharging the liability so incurred.

Financial assistance includes a gift, guarantee, security, or indemnity, loan, any form of credit and any financial assistance given by a company.

There are no applicable procedures that make any such acquisition permissible.

All regulatory restrictions, costs, and consents required to approve the grant of security are described above in 5.1 Assets and Forms of Security. There are no other regulatory restrictions, costs or consents required to approve the grant of guarantees.

Under Nigerian law, securities are typically released upon the execution of a deed of release and discharge between the lender or the security agent and the borrower. The instrument of release must be stamped and registered at the CAC, and at any other relevant registry, such as the Land Registry, for the discharge of security over real estate. The lender shall also hand over all security and title documents to the borrower, thereby extinguishing the security.

In Nigeria, the priority of competing security interests is governed by the general legal and equitable rules of priority and the nature of the interests created. These rules are also provided for under CAMA.

Under Section 179 CAMA, a fixed charge on any property shall have priority over a floating charge affecting that property, unless the terms on which the floating charge was granted prohibited the company from granting any later charge having priority over the floating charge and the person in whose favour such later charge was granted had actual notice of that prohibition at the time when the charge was granted to him.

Section 197 CAMA also provides that certain charges created by a company be registered at the CAC in order for it to be valid against a liquidator and any other creditor of the company. This section, however, does not confer priority based on date of registration, but rather provides that if the registration occurs within the statutorily prescribed 90-day period after execution of the loan agreement, the security interest will have priority based on its date of creation.

The general rules of priority rank as follows:

  • legal interests rank ahead of equitable interests;
  • where multiple interests are created over an asset, the priority ranking will be chronologically determined, with the higher priority given to the earlier in time;
  • a later fixed charge (whether legal or equitable) will have priority over an earlier floating charge, provided that the floating charge did not prohibit the company from creating the fixed charge in question, and that the holder of the later fixed charge did not have actual notice of the prohibition.

There are no statutory requirements for the subordination of debts. However, a creditor may agree under contract to subordinate its debt and postpone its enforcement rights in favour of another creditor. Contractual subordination does not survive the insolvency of a borrower incorporated in Nigeria. The junior and senior lenders must contractually provide for turnover rights in favour of the senior lender.

A secured lender may enforce its security in the event of the borrower’s bankruptcy or insolvency or upon the terms of the loan agreement (ie, events of default under the finance and security documents).

Upon the occurrence of an event of default, the lender’s right to enforce is triggered and such enforcement means are usually provided for under the security/finance documents. Loans are usually enforced through acceleration of the loan and enforcement of the security interests held as collateral of the loan, by:

  • exercising the power of sale to dispose secured assets by public auction or private sale (where expressly provided for in the transaction documents);
  • appointing of a receiver over the secured assets, which appointment must be registered at the CAC;
  • a mortgagee under a legal mortgage over land may:
    1. apply to the court for an order to extinguish the mortgagor’s equity of redemption and vest the mortgagor’s entire interest in the mortgagee, or
    2. enter into and take possession of the mortgaged property;
  • applying to court for an order of sale or forfeiture.

The circumstances for enforcing a guarantee are subject to the terms of the guarantee document, typically through notice to the guarantor that the primary obligor is in default of its obligations under the agreement and demand of payment by the guarantor.

A choice of foreign law as the governing law of a contract and the submission to a foreign jurisdiction and a waiver of immunity will be upheld by Nigerian courts. However, Nigerian courts will disregard choice of law clauses where they are contrary to Nigerian public policy, or inconsistent with Nigerian law. In the same vein, the submission to a foreign jurisdiction and a waiver of immunity will be upheld in Nigeria.

A judgment given by a foreign court is enforceable within Nigeria without a retrial on the merits of the case, where such foreign judgment is registered at a High Court in Nigeria. Upon registration, the judgment will have the same force and effect as a judgment given by the High Court where it was registered and can be enforced as a domestic judgment. However, a foreign judgment will not be enforced if it is contrary to Nigeria’s public policy, or does not relate to a definite sum, or if it is made by a court of the foreign country that has no jurisdiction over the matter or where the defendant was not given an opportunity to present its case.

Under the Arbitration and Conciliation Act, Chapter A19 LFN 2004 (ACA), an arbitral award is binding and, upon written application to the court, shall be enforceable by the court. The ACA also adopts the Convention on the Recognition and Enforcement of Foreign Awards and uses its provisions as the standard for the recognition and enforcement of any award arising out of an international commercial arbitration.

There are no specific restrictions applicable to foreign lenders in enforcing their rights under a loan or security agreement. It is, however, important to note 3.3 Restrictions and Controls on Foreign Currency Exchange, above, on CCI requirements. Where a foreign lender does not have a CCI, it may find it difficult to convert naira proceeds from enforcement into foreign exchange for repatriation.

There are no formal company rescue or reorganisation procedures outside of insolvency proceedings in Nigeria, and any restructuring outside insolvency proceedings is a purely informal arrangement. However, companies may undergo mergers and acquisitions which are regulated under the general companies and securities laws.

The commencement of insolvency processes typically acts as a bar on certain actions regarding the insolvent company. Any attachment, sequestration, distress or execution against the estate or effects of the company after the commencement of the winding up shall be void. Any disposition of the property of the company made after the commencement of the winding up shall be void.

Furthermore, under a winding up, the court will appoint a liquidator who will manage all the assets and debts of the company and be responsible to pay all the company’s creditors and adjust the rights of the contributories among themselves.

Upon a company’s insolvency, the company’s creditors are paid in this order:

  • the list of preferential payments to be paid in priority to all other debts under Section 494 CAMA, including unpaid taxes, wages, and contributions due and unpaid under the Employees Compensation Act;
  • creditors holding a fixed charge;
  • the costs, charges and expenses of the winding up;
  • creditors holding a floating charge;
  • unsecured creditors;
  • subordinated creditors; and
  • shareholders.

There is no statutory provision for equitable subordination under Nigerian law.

A lender is generally at risk to the extent that his loan is not adequately secured. Under CAMA, a secured charge over a company’s property is void against the company’s liquidator and any creditor of the company, unless the charge instrument is registered by the CAC. An instrument is only registered (and secured) to the amount of the loan in respect of which stamp duties were paid, since stamp duties on security documents are charged on an ad valorem basis. Where security documents have been charged for a reduced or nominal amount in order to avoid the huge stamp duty and registration costs, the lender is only secured to that extent, and runs the risk of losing priority to a liquidator or subsequent encumbrancer for the difference, unless the instrument is subsequently upstamped to the full amount prior to the commencement of winding up.

In Nigeria, project finance is usually employed in the development of large-scale capital-intensive projects in sectors such as agriculture, commerce, communication, energy, infrastructure, and transportation. As with all project finance projects, project finance in Nigeria is used to raise long-term debt financing by lending against the cash flow of the project alone. Popular forms of project financing in Nigeria in recent times include the development of upstream and downstream oil and gas assets, the development utilities such as power generation plants, the construction of tolled roads and the roll-out of telecommunications infrastructure. There is no specific legal framework for project finance in Nigeria, and legal governance would typically be across several laws and regulations, depending on the sector which the project being financed falls under. Relevant laws would thus cut across contract law, company law, certain provisions of the tax laws (eg, on stamp duties), equity and trusts, relevant judicial decisions and relevant sectoral laws.

While is there is no specific legislation on project finance in Nigeria, the following laws are applicable to project finance transactions:

  • Central Bank of Nigeria Act, 2007;
  • Companies and Allied Matters Act, Chapter C20, LFN 2004;
  • Electric Power Sector Reform Act 2005;
  • Environmental Impact Assessment – National Environmental Standards and Regulations Enforcement Agency (Establishment) Act 2007;
  • Factories Act, Chapter F1, LFN 2004;
  • Infrastructure Concession Regulatory Commission (Establishment) Act, 2005;
  • Investment and Securities Act, 2007;
  • Land Use Act, Chapter L5, LFN 2004;
  • National Environmental Standards and Regulations Enforcement Agency (Establishment) Act 2007;
  • National Inland Waterways Act Chapter N47, LFN 2004;
  • Nigerian National Petroleum Corporation Act, Chapter N123, LFN 2004;
  • Land Vesting Title Act, Chapter L7, LFN 2004;
  • Public Procurement Act, 2007; and
  • Constitution of the Federal Republic of Nigeria, Chapter C23, LFN 2004 as amended.

In Nigeria, the Public-private Partnership (PPP) sector is regulated primarily by the Infrastructure Concession Regulatory Commission and the Bureau of Public Procurement alongside government Ministries, Departments and Agencies. The Fiscal Responsibilities Act, 2007 may also be relevant where government borrowing is involved. PPPs have evolved over time to become one of the most viable options for infrastructure development in Nigeria. Major government projects are often carried out through public partnership with the private sector.

Regulations like the Public Procurement Act (2007) (PPA), Infrastructure Concession Regulatory Commission (ICRC) Act, Public Procurement Goods and Works regulations (2007) and the Procurement Procedures Manual for Public Procurement, 2012 (the manual) regulate the operation of PPPs in Nigeria. The PPA governs the operation of public procurement at the federal level in Nigeria. It establishes the Bureau of Public Procurement, which formulates guidelines and policies for public procurement in Nigeria. The ICRC Act establishes the ICRC and grants it the power to monitor compliance with and ensure execution of concessions in Nigeria, as well as issue regulations and guidelines.

Project finance transactions usually require that some approval or consent from a governmental body or agency be sought to undertake the project itself, not necessarily for the financing. These approvals are usually obtained from the relevant federal, state or local agency that has regulatory authority over the project’s sector or the project asset. The project financing itself – to the extent it does not involve government borrowing – does not require any government approvals, taxes, fees or other charges save as discussed below.

Finance documents (including project finance) documents are usually subject to stamp duties at the Federal Inland Revenue Service and where registrable security is involved, registration fees at the Corporate Affairs Commission. Security documents may require filing and registration at further registries. Please see 5.1 Assets and Other Forms of Security, above. In addition, foreign lenders may require a Certificate of Capital Importation to guarantee repatriation of their investments

Oil and Gas

Responsible government bodies:

  • Ministry of Petroleum;
  • Department of Petroleum Resources;
  • Nigerian Oil and Gas Content Development Board;
  • Federal Ministry of Environment;
  • National Oil Spill Detection and Response Agency;
  • Nigerian National Petroleum Corporation, which is the National Oil Company – although not a regulatory body, it also has a very high influence on oil and gas activities in Nigeria, especially the downstream sector;
  • National Petroleum Investment Management Services (NAPIMS).

Primary laws and regulations:

  • Petroleum Act;
  • Petroleum (Drilling and Production) Regulations;
  • Petroleum Regulations;
  • Petroleum Refining Regulations;
  • Petroleum Profits Tax Act;
  • Oil Pipelines Act;
  • Deep Offshore and Inland Basin Production Sharing Contracts Act;
  • Nigerian National Petroleum Corporation Act;
  • Nigerian Oil and Gas Content Development Act;
  • National Oil Spill Detection and Response Agency Act.

Electric Power

Responsible government bodies:

  • Federal Ministry of Power;
  • Nigerian Electricity Regulatory Commission;
  • Nigeria Atomic Energy Commission;
  • Nigerian Electricity Management Services Agency;
  • Nigerian Bulk Electricity Trading Company Plc – although not a regulator, it is an important entity in power purchase transactions;
  • Nigeria Electricity Liability Management Company.

Primary laws and regulations:

  • Electric Power Sector Reform Act 2005;
  • Nigerian Electricity Management Services Agency Act 2007;
  • Market Rules;
  • Grid Code Rules;
  • Meter Asset Provider Regulations;
  • Eligible Customer Regulations.


Responsible government bodies:

  • Federal Ministry of Mines and Steel Development;
  • Nigerian Mining Cadastre Office.

Primary laws and regulations:

  • Nigerian Minerals and Mining Act 2007;
  • Nigerian Extractive Industries Transparency Initiative Act 2007;
  • National Minerals and Metals Policy 2008;
  • Minerals and Mining Regulations 2011;
  • Guidelines on Mineral Titles Application.

Other Relevant Agencies and Regulations

Responsible government bodies:

  • National Environmental Standards and Regulations Enforcement Agency;
  • Infrastructure Concession Regulatory Commission;
  • Bureau of Public Procurement.

Primary laws and regulations:

  • National Environmental Standards and regulations Enforcement Agency Act, 2007;
  • Infrastructure Concession Regulatory Commission (Establishment, etc) Act, 2005;
  • Land Use Act, L5, LFN 2004;
  • Companies and Allied Matters Act, C20, LFN 2004;
  • Nigerian Investment Promotion Commission Act, N117, LFN 2004;
  • Companies Income Tax Act, C21, LFN 2004;
  • Foreign Exchange (Monitoring and Miscellaneous Provisions) Act, F34 LFN 2004;
  • Constitution of the Federal Republic of Nigeria, C23, LFN 2004.

The following issues are considered when structuring a project finance deal: the nature of the project, the bankability of the project, the allocation of risks, the parties to the project, the project company, and the perfection of security documents.

The nature of the project involves a review and analysis of the laws and relevant agencies that regulate the project asset or activity, an assessment of the question whether the project involves a permitted activity and what consents or approvals are necessary to undertake these activities.

The bankability of the project involves structuring the transaction in the most fiscally feasible form to represent an acceptable overall risk to the lenders and to identify and allocate all risks across the transaction chain. Project bankability review involves an assessment of the following:

  • the credibility of procurement procedures;
  • the quality of risk distribution arrangements;
  • the careful allocation of rights and obligations;
  • the rich contextualisation of events that constitute force majeure;
  • ensuring the availability of offtakers and securing a long-term offtake agreement.

Risk is allocated to all parties across the project chain including the project sponsors, the project lenders, the EPC contractor, the operating company and the host government, among others. The relevant risks and mitigation strategies in a project finance include:

  • interest rate risk, which is mitigated using either fixed or floating interest rates or interest rate swaps;
  • currency risk, which is mitigated using currency swaps or hedging;
  • demand-market risk, which is mitigated by securing long-term offtake agreements that specially define price variables;
  • construction, operation and technical risk, which is mitigated using performance bonds, government guarantees, completion guarantees, damages for breach of performance, and fixed price for operation and maintenance contracts; and
  • commercial risk, which is mitigated using commercial risk insurance.

The parties to the project usually include the project lenders, the facility agent, the security agent, the project company/borrower, the project sponsors and the guarantor.

The project company is usually a special purpose vehicle (SPV) incorporated in Nigeria and held by the project sponsors alone or in partnership with a governmental agency where the project involves a public-private partnership.

Foreign lenders must obtain a Certificate of Capital Importation to guarantee access to the Nigerian foreign exchanges and ensure repatriation of debt and interest in the currency of the loan. See 3.3 Restrictions and Controls on Foreign Currency Exchange, above.

All transaction documents must be stamped while security documents perfected under Nigerian law. See 5.1 Assets and Forms of Security, above.

The typical financing sources for project finance include the project sponsors, commercial banks, merchant banks, local and international development finance institutions, infrastructure bonds, corporate bonds, export credit agencies, multilateral development agencies, finance companies, vendor financing, etc.

Due to the number of parties involved in a project finance structure, different parties will have different roles to play. The project sponsors will bring financing at the shareholder and business promotion level. The sponsors will also usually incorporate a project company to undertake the project and which takes the loan and provides security. They may also be required to provide guarantees under the project finance structure. Project finance is usually structured with a syndicated loan agreement between the project company/borrower, the lenders and the facility agent. The project assets, project contracts, and other rights and receivables are provided as security for the loan and held by a security trustee under a Security Trust Deed. Export credit agencies and multilateral development agencies usually provide support through guarantees as well as financing. Vendor financing may also play a role in the project finance structure, as an EPC contractor may finance the creation or development of the project asset in exchange for payment through revenue generated by the asset. Risk is generally shared across the project finance structure under all the different agreements and guarantees, as well as through insurance and hedging. Please see 8.5 The Main Issues When Structuring Deals, above.

The acquisition of natural resources usually has licensing requirements attached. These licences are generally only awarded to Nigerian companies. In the petroleum sector, such licences include oil prospecting licences, oil mining leases and oil pipeline licences, which are issued by the Minister of Petroleum Resources. Other mining activities may require a mining lease issued by the Minister of Mines and Steel Development.

In order to export natural resources from Nigeria, the exporter must be registered with the Nigerian Export Promotion Council and must have obtained any relevant export permits and approvals. Oil exporters are required to have obtained an export permit issued by the Ministry of Petroleum Resources, through the Department of Petroleum Resources and the Ministry of Trade and Investment.

The relevant environmental, health and safety laws that apply to projects in Nigeria are as follows:

  • The National Environmental Standards and Regulations Enforcement Agency (NESREA) Act, 2007, which is overseen by NESREA and regulates all environmental protection matters across the country and in all sectors except the oil and gas sector.
  • The National Oil Spill Detection and Response Agency (NOSDRA) Act, 2006, which is overseen by NOSDRA and regulates all oil spill-related environmental issues in Nigeria.
  • The Flare Gas (Prevention of Waste and Pollution) Regulations, 2018, which are overseen by the Department of Petroleum Resources and regulate all issues of gas flaring in Nigeria.
  • The Environmental Impact Assessment Act, Chapter E12, LFN 2004, which is overseen by NESREA and requires that an EIA be conducted on any projects that have likely environmental effects.
  • The States Environmental Protection Agency (EPA) Laws, which establish state EPAs and grant them the power to regulate environmental quality standards within their states – eg, Lagos State Environmental Protection Agency Law (Chapter L27), Laws of Lagos State of Nigeria, 2015, which establishes the Lagos State Environmental Protection Agency (LASEPA) and grants it the power to make regulations and prescribe acceptable standards to control the level of water, air, noise and land pollution, in conformity with the Federal Government guidelines, policies and criteria on the environment, and to advise the state government on all environmental management policies.

Islamic finance preceded Islamic banking in Nigeria with offshore Islamic banks lending to Shari’a-compliant businesses in Nigeria. Islamic banking, however, began in Nigeria in January 2012, when the Central Bank of Nigeria granted Jaiz Bank an approval in principle to operate as a regional interest-free bank in Northern Nigeria, thereby making Jaiz Bank became the first Islamic bank in Nigeria. CBN regulates banking activities in Nigeria under BOFIA and the Central Bank of Nigeria Act (CBN Act) 2007; see 2.1 Authorisation to Provide Financing to a Company, above. Through these laws, CBN has issued some guidelines regulating Islamic finance in Nigeria, as detailed below.

The Guidelines for the Regulation and Supervision of Institutions Offering Non-Interest Financial Services in Nigeria categorises Islamic non-interest banking and finance models into non-interest banking and finance based on Islamic commercial jurisprudence, and non-interest banking and finance based on any other established non-interest principle. There are two institutions that currently provide Islamic finance services in Nigeria – Stanbic IBTC, a unit of South Africa's Standard Bank, and Jaiz Bank, a full-fledged Islamic lender which has operated in Nigeria since 2012. In July 2019, another Islamic bank – TAJ Bank limited – was also granted a licence to operate as a full-fledged Islamic lender. Sterling Bank has been granted approval in principal to launch an Islamic finance arm. The Guidelines establish the CBN’s Financial Regulation Advisory Council of Experts (FRACE) to advise CBN on all Islamic finance matters and regulate and supervise institutions offering non-interest financial services in Nigeria.

The Guidelines on the Regulation and Supervision of Non-Interest (Islamic) Microfinance Banks in Nigeria provide the standard operating procedures and other requirements that operators of Islamic microfinance banks are to comply with.

As part of the development of Islamic financing, states and the federal government have also issued sukuk and the Nigerian Stock Exchange recently published its Rules for Governing the Listing of Sukuk and Similar Debt Securities in 2018.

Two major sukuk have been issued in Nigeria. In 2013, the Osun State Government issued the first sukuk in Sub-Saharan Africa, worth NGN11.4 billion (USD70.6 million) to fund education projects within the state. In 2017, the Nigerian Federal Government issued a NGN100 billion sovereign sukuk to fund its infrastructure projects. A second NGN100 billion tranche was issued in 2018. Sefton Fross acted as joint legal adviser to the Federal Government on the sukuk transaction and as adviser to the Osun State government on the proposed restructuring of sukuk issue.

Islamic finance institutions, like other financial institutions, are regulated by the Central Bank of Nigeria (CBN) and the Securities and Exchange Commission (SEC). In May 2012, the CBN, released its “Understanding Monetary Policy Series No 17, Liquidity Management Under Non-interest (Islamic) banking” which heralded the commencement of Islamic banking in Nigeria. This followed the abolition of the Universal Banking Regime in 2010 which led to the creation of "specialised banks” which covered non-interest and Islamic financial institutions. The CBN also introduced the Guidelines for the Regulation and Supervision of Institutions offering Non-Interest Financial Services in Nigeria and set up a non-interest banking unit in its Financial Policy and Regulation Department.

Unlike the conventional banking system, which is interest-driven, the Islamic banking system is asset-backed. This feature has increased its popularity in view of the recent global financial crisis. This feature has been sustained over time in line with some fundamental Islamic principles.

The foundations of non-interest (Islamic) banking are the prohibition of the collection and the payment of interest, but the sharing of profit and loss as enshrined in the Shari’a law. The objective of non-interest banking is to promote financial inclusion and deepen financial intermediation.

In Nigeria, non-interest banking may be structured through:

  • an Islamic bank or an Islamic banking subsidiary of a conventional bank;
  • an Islamic merchant or Islamic banking subsidiary of a conventional merchant bank; and
  • an Islamic microfinance bank.

The Securities Exchange Commission (SEC), Nigerian Stock Exchange and FMDQ OTC Plc regulate the listing of Islamic finance products. The public offering and trading of Islamic finance products is regulated by SEC pursuant to the Investments and Securities Act (ISA) 2007 and SEC’s rules and regulations (SEC Rules). The SEC introduced new rules to regulate the issuance of sukuk in Nigeria on 8 February 2013. Rule 572 of the SEC Rules makes all public companies (including special purpose vehicles), state governments, local governments, and government agencies as well as multilateral agencies eligible to issue, offer or make an invitation of sukuk subject to the SEC's approval.

In relation to taxation, the Federal Inland Revenue Service exempts sukuk from Companies Income Tax, Personal Income Tax, Capital Gains Tax, and Value Added Tax.

The main Shari'a-compliant products used in Nigeria are:

  • musharaka, which is an equity participation contract, where different parties (financiers and the sponsors) contribute capital to a project and profits from the project are shared according to a pre-determined ratio (not necessarily in relation to contributions), but losses are shared in proportion to capital contributions;
  • mudaraba, under which capital is provided only by the financiers who places the funds in the hands of a fund manager, who manages the fund by investing in Shari’a-compliant investments in return for remuneration based on a share of profits;
  • bai al-salam, which are Shari’a-compliant forward sale contracts, where a buyer provides payment for products which are to be delivered in future;
  • sukuk, which are asset-backed instruments representing a beneficial ownership interest in an underlying asset – sukuk is a certificate that resembles a conventional bond or asset-backed security and is usually combined with other forms of Islamic finance such as musharaka;
  • ijara, which is an Islamic finance lease or sale-leaseback financing product;
  • murabaha, which is a purchase money contracts where in the event of default the "borrower" is only liable for the contract price, not additional interest, fees, or penalties;
  • istisna’a, under which assets are manufactured or constructed to certain specifications set by the financial institutions financing the project.

In Nigeria, sukuk instruments are usually regarded as non-interest-bearing debt securities. The 2018 SEC Rules Governing the Listing of Sukuk and Similar Debt Securities defines "sukuk" as investment certificates or notes of equal value evidencing undivided ownership interest in tangible assets, usufructs and services, or investments in assets of projects or special investment activity using Shari'a principles and concepts approved by the SEC.

In the event of insolvency or restructuring proceedings, the rights of sukuk holders will depend on the form and structure of the sukuk instrument. The sukuk issued by the Federal Government in 2017 were debt securities holding direct, unconditional and unsecured obligations of the Federal Government of Nigeria and ranking pari passu with all other outstanding present and future unsecured obligations of the Federal Government of Nigeria. Furthermore, the CBN liquidity requirements for the issuance of sukuk by state governments require that states set up a sinking fund account for the repayment of their sukuk obligations. However, sukuk may also be structured as equity instruments where the return on the instrument is dependent on changes to the underlying assets.

Where the sukuk is a debt security, the holders are regarded as creditors (secured or unsecured) and where it is an equity instrument, the holders are regarded as shareholders for the purpose of priority in ranking. Please see 7.3 The Order Creditors Are Paid on Insolvency, above.

As far as is known, there are no reported cases relating to conflicts between Shari'a law and local law in the banking and finance sector.

Sefton Fross

20B Kingsley Emu Street, Lekki Scheme 1

+234 1 295 0747

+234 1 454 3272
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Law and Practice


Sefton Fross is a full-service commercial law firm in Lagos, Nigeria, known for its expertise in banking and finance matters, including energy finance, debt capital markets, corporate finance, project finance, structured finance, derivatives, and trade finance. The firm’s banking and finance practice is made up of a team of 11 lawyers led by managing partner, Olayemi Anyanechi. Sefton Fross provides legal advice on financing transactions to private and public limited companies, private equity firms, local and international banks, export credit agencies, multilateral and development finance institutions and government agencies. It has advised on some of the largest banking and finance transactions in Nigeria since its inception, including cross-border financings and cutting-edge Islamic finance transactions.

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