The Securities and Exchange Commission (SEC) has announced plans to strengthen the regulatory framework for borrowing by governments and corporate entities in Nigeria.
SEC’s Director-General, Dr. Emomotimi Agama, disclosed this in a statement issued on Wednesday in Lagos, highlighting the importance of borrowing in the financial system and the need for strategic resource management.
Dr. Agama explained that the recent Supreme Court order mandating direct funds transfer from the Federal Government to the 774 Local Government Areas influenced the need for a more robust borrowing framework.
“Improving the framework for borrowing is very important because borrowing is an integral part of the financial system. We can only achieve the progress we aim for if there is enough funding.
Hence, we want to be sure of sustainability in both government borrowing: municipal and state governments. It is therefore important that we manage such resources, via strategic and focused borrowing to help the developments in those sectors,” he said.
New rules for corporate borrowing
On corporate borrowing, Dr. Agama revealed that the commission is changing the landscape with the new rules on Central Counter Parties (CCPs) to reshape the capital market landscape.
“We want to make borrowing a seamless and effortless process for Nigerian companies. It is very important that as we drive the growth of the Nigerian capital market, we will also drive new products and new opportunities for every Nigerian,” he said.
The rules, which will take effect in 2025, are designed to help corporates raise capital while diversifying Nigeria’s financial market.
Agama noted that the introduction of CCPs would mark a significant shift in how capital is raised and managed.
Plans to introduce derivatives
Dr. Agama also emphasized the commission’s focus on introducing derivatives into the Nigerian capital market, describing it as a critical step for market diversification.
“2025 would be different, as SEC would continue driving the introduction of derivatives into the capital market,” he said.
Derivatives are financial instruments whose value is derived from an underlying asset, such as stocks, commodities, currencies, or interest rates. They are commonly used by investors to manage risks, speculate on market movements, or gain exposure to specific assets without owning them directly.
However, he acknowledged that achieving this goal would require enabling laws and regulations.
“To foster confidence in derivatives trading, we are providing a clear framework for these transactions. This includes exempting such transactions from general insolvency laws, thereby creating a safer and more predictable trading environment,” he added.
Dr. Agama stated that SEC’s efforts are aimed at creating a safer trading environment to build confidence and attract more participants to the market.
“The commission is creating a safer trading environment, building confidence and attracting more players to the market, hence it must provide enabling regulations and laws,” he said.
What you should know
In July 2024, the Supreme Court issued an order mandating direct subvention from the Federal Government to the 774 Local Government Areas in Nigeria.
- The court’s decision mandates that funds allocated to the 774 Local Government Areas (LGAs) bypass state governments and go directly to the democratically elected local government administrations.
- This decision is to address the long-standing issue of state governors mismanaging local government funds and ensures that LGAs can operate independently, with their share of revenue directly allocated to them.
- This change in financial control means that LGAs will now be responsible for managing their own funds, which may require borrowing to finance development projects.
- With this shift in financial control, there is a heightened focus on ensuring that borrowing by both government entities (municipal and state) and corporates is sustainable and strategically managed.
This aligns with SEC’s goal to improve the regulatory framework for borrowing, helping to effectively utilize and manage resources for development.
