The Central Bank defines a Commercial Paper (CP) as an unconditional promise by a person to pay to the order of another person a certain sum at a future date. Such an instrument may or may not carry the bank’s guarantee. Where the bank guarantees the CP to make it more marketable in the money market, the instrument acquires the force of a BA and the bank incurs a contingent liability. Where the CP is not secured or guaranteed by the bank (clean CP), it needs not be reported as a contingent liability.
A CP is typically issued by large corporations and issued on the bank of receivables for goods sole as such requires no security. However, in Nigeria it is not uncommon for corporations to still provide some of security if a Banks guaranty is sought.