Procedure for Obtaining Mobile Money Operator License in Nigeria

On 3rd August 2021, the recent Central Bank of Nigeria (“CBN”) released the Guidelines for the Establishment and Regulation of Payments Service Holding Companies (“PSHC”) in Nigeria. The Guidelines requires companies that intend to offer both switching and processing and mobile money services to set up a PSHC structure.

The Guidelines defines PSHC as a company whose principal object clause is to be a holding company set up for the purpose of making and managing equity investment in 2 (two) or more companies, being its subsidiaries, which are payment service providers across the following categories:

  1. Mobile Money Operations (“MMO”)
  2. Switching and Processing
  3. Payment Solution Services.

(A) Share capital

The minimum issued share capital of a company seeking to apply for an MMO license is N2,000,000,000.00 (Two Billion Naira) (approximately US $ 3, 703, 704 (Three Million, Seven Hundred and Three, Seven Hundred and Four United States dollars) at 540 naira per dollar.

The PSHC and MMO are in the same category with the switching and processing and payment solution services subsidiary companies in terms of the minimum share capital requirement of N 2, 000,000,000.00 (Two Billion Naira) share capital which must be deposited with CBN before the completion of the license application process.

(B) Procedure for Obtaining a Mobile Money Operator License

The licensing requirement as provided in the CBN guideline requires the promoters of the companies to submit a formal application for the grant of a License addressed to the Director, Payments System Management Department of the CBN.

The licensing process shall be in two phases: Approval-in-Principle (AIP) and Final License stage.

(C) Requirements for Grant of Approval-In-Principle (AIP)

The application shall be accompanied with the following:

  • A non-refundable application fee of N1, 000,000.00 (One Million Naira) (approximately US $ 1, 852 (One Thousand, Eight Hundred and Fifty Two United States dollars) or such other amount that the CBN may specify from time to time; payable to the CBN, through electronic transfer.
  • Evidence of meeting the prescribed minimum paid-up capital subject to the satisfaction of the CBN.

Detailed business plan or feasibility report which shall, at a minimum, include:

  • Objectives of the PSHC and those of the subsidiaries it intends to establish/acquire.
  • Justification for applying for the payments service holding company.
  • Ownership structure in a tabular form indicating the name of proposed investor(s), profession/business and their percentage shareholdings.
  • Bio-data, resume/curriculum vitae of proposed investors.
  • Indication of sources of funding of the proposed equity contribution for each investor.
  • Where the source of funding the equity contribution is a loan, it shall be a long term facility of, at least, a 7-year tenor, and shall not be obtained from the Nigerian banking system or foreign subsidiaries of Nigerian banks.
  • Corporate Governance Charter of the PSHC stating the roles and responsibilities of the board and its sub-committees, among other things.
  • Criteria for selecting board membership.
  • Bio-data and detailed resumes of directors and board composition.
  • List of identified top/senior management staff, bio-data and detailed resumes stating qualifications, experiences, records of accomplishment, etc.
  • National or Government issued identity documents (International Passport, etc.) bio-data and Bank Verification Numbers (BVNs) of proposed Board and management staff of the company.
  • The Tax Identification Number (TIN) of the company and its Tax Clearance Certificate where applicable.
  • A schedule of services that will be shared in the group.
  • Five-year financial projection on the operations of the PSHC indicating expected growth and profitability, and details of the assumptions that form the basis of the financial projection.
  • Details of Information Technology (IT) infrastructure proposed to be deployed.
  • Information on and pictorial representation of the corporate group structure with shareholding percentage by the PSHC in each of the subsidiaries and their principal businesses and registered Head offices.
  • A written and duly executed undertaking by the promoters that the PSHC shall be adequately capitalised for the volume and character of its business at all times, and that the PSHC shall be under the supervisory authority of the CBN, as an Other Financial Institution (OFI).
  • For regulated foreign institutional investors, the CBN shall require a no objection letter from the regulatory body in the home country.
  • Shareholders’ agreement providing for disposal/transfer of shares as well as authorisation, amendments, waivers, reimbursement of expenses, etc.
  • Statement of intent to invest in the PSHC to be made by each investor in the PSHC.
  • Technical Services Agreement, where applicable.

Draft copy of the company’s Memorandum and Articles of Association (MEMART). At a minimum, the MEMART shall contain the following information:

  • Proposed name of the PSHC.
  • Object clause which shall be limited to the permitted activities of its license.
  • Subscribers to the MEMART.
  • Procedure for amendment.
  • Procedure for share transfer or disposal.
  • Appointment of directors.
  • Where the promoters of the PSHC are corporate investors, the CBN shall require them to forward the following additional documents.
  • Certificate of Incorporation.
  • Board resolution supporting the company’s decision to invest in the equity shares of the proposed PSHC.
  • Names, biometrics, BVNs and addresses (business and residential) of owners, directors and their related companies, if any.
  • Audited financial statements and reports of the company, including Tax Clearance Certificate for the immediate past 3 years.
  • Certified True Copies of the company’s CAC forms showing the details of allotment and particulars of directors.
  • Any other document/information that the CBN may require from time to time.
  • If satisfied with the application of the promoter(s), the CBN may grant an Approval in Principle (AIP).

Duration

The AIP stage usually takes a period of between 2-3 months to process.

(D) Requirements to Incorporate an MMO company

Companies in Nigeria are incorporated at the Corporate Affairs Commission (CAC). The requirements for incorporating a company are as follows:

  1. 2 (two) unique names of the proposed company to be reserved at the CAC;
  2. Name, address, phone number, email and means of identification of at least 2 Directors, one of which must be a Nigerian or a foreigner with business permit to carrying on business in Nigeria;
  3. Name, address, phone number, email, means of identification of at least one Share holder and in the case of corporate shareholder its incorporation Certificate and Board Resolution to acquire shares in the proposed company;
  4. Objects of the proposed company;
  5. Nigerian address, phone number and email of the proposed company;
  6. Special Articles of Association of the proposed company ;
  7. Name, address, phone number, email, means of identification of Company Secretary;
  8. Approval in Principle from CBN;
  9. Payment of statutory filing fees and stamp duty.

Duration

The incorporation stage will take a period of 7-10 business days.

(E) The Requirements for Granting a Final License

Within six (6) months after obtaining the AIP and incorporation of the company, the promoters of a proposed PSHC shall submit an application to the CBN for the grant of a final license.

The application shall be accompanied with the following:

  • Non-refundable licensing fee of N5,000,000.00 (Five Million Naira) (approximately US $ 9, 259), or such other amount that the CBN may specify from time to time, payable to the Central Bank of Nigeria by electronic transfer.
  • Evidence of promotion or investment of a payment service company.
  • Evidence of payment of capital contribution by each shareholder.
  • Evidence of location of Head Office (rented or owned) for the take-off of the PSHC.
  • Schedule of changes, if any, in the Board, Management, IT infrastructure and significant shareholding since the grant of AIP.
  • Evidence of ability to meet technical requirements and modern infrastructural facilities such as office equipment, computers, telecommunications, etc. to perform PSHC operations and meet CBN and other regulatory requirements.
  • Organisational structure, showing functional units, responsibilities, reporting relationships and grade (status) of heads of departments/units.
  • Board and staff training program.

Duration

The Final Licence stage usually takes a period of between 2-3 months to process.

(F) Requirements for Commencement of Operations

Upon obtaining the Final Licence, the PSHC shall inform the CBN of its readiness to commence activities and such information shall be accompanied with one copy of each of the following:

  1. Shareholders’ Register.
  2. Share certificate issued to each investor.
  3. Enterprise Risk Management Framework (ERMF).
  4. Internal Control Policy.
  5. Minutes of pre-commencement board meeting.
  6. Opening statement of affairs signed by directors and auditors.
  7. Date of Commencement of Activities.

(G) Conclusion

In order to manage financial risks and for efficiency of the business, the CBN expect promoters of a Mobile Money Operator company to form at least 3 (three) companies; first, the PSHC which is the holding company; second, a mobile money operator subsidiary and third, the switching and processing subsidiary. Each of the 3 (three) companies shall have a minimum share capital of N 2, 000, 000, 000 (Two Billion naira).

Fred-young & Evans LP

Fred-young & Evans LP

El Salvador becomes first country to accept Bitcoin as legal tender

El Salvador has become the first country in the world to make Bitcoin (BTC-USD) legal tender. The announcement comes amid protest and uncertainty, as questions remain about the integration of cryptocurrency into the Salvadoran financial system.

Multiple surveys reveal the level of distrust within El Salvador towards the new law. A poll of 1233 Salvadorans run by Disruptiva at the beginning of July revealed that two-thirds of participants were not willing to be paid in Bitcoin.

Recent studies conducted in late August by El Salvador’s University of Central America (UCA) revealed a high level of negative sentiment towards the Bitcoin law. The survey found that 80% of 1281 Salvadorans polled had no trust in bitcoin and only 17% think it will improve the economy.

Since the announcement, lawmakers in both Paraguay and Uruguay have proposed their own bitcoin legislation. In mid-August, president of Argentina Alberto Fernandez told one of the nation’s media channels that he was open to making bitcoin legal tender in the country.

Countries in other parts of the world, especially those with currencies pegged to the United States dollar, are keen to see if Bitcoin could offer them more monetary autonomy.

However, Nelson Rauda Zablah of El Faro digital newspaper, urged empathy towards Salvadorans who are in effect becoming guinea pigs in the world’s first state-run cryptocurrency experiment. He called for those “cheering the president from the side-lines” to consider what it would be like if their own national economy was about to be tossed into a “virtual casino,” and it was “their own business, credit rating, pension scheme, or savings at stake.”

DLA Piper advises Briq in US$30 million Series B financing

DLA Piper represented construction technology company Briq Technologies Inc. in its recent US$30 Series B financing led by Tiger Global Management LLC.

Briq’s corporate performance management (CPM) platform for construction financial professionals provides accurate and real-time forecasting abilities, automated workflows and interconnected systems that provide contractors with better visibility into their business.

“It was a pleasure to bring together our extensive experience advising emerging growth tech companies on complex transactions and our strong understanding of the construction industry to advise Briq on this financing, which will enable it to continue developing innovative construction technology for the benefit of its customers,” said David Richardson, the DLA Piper partner who led the firm’s deal team.

In addition to Richardson (Sacramento), the DLA Piper team representing Briq included associate Spencer Hodson (Sacramento) and partner Eileen O’Pray (Silicon Valley).

DLA Piper’s Emerging Growth and Venture Capital practice includes more than 200 lawyers in the United States who provide strategic counsel to emerging companies in high-growth industries, including healthcare, insurance, biotech, manufacturing, communications, software and semiconductors. Over the last three years, DLA Piper has completed more than 2,100 financings totalling over US$31 billion.

DLA Piper’s global Technology sector lawyers work across practice areas and offices to support technology clients – from start-ups to fast-growing and mid-market businesses to mature global enterprises – doing business around the world.

DLA Piper advises on all aspects of the fintech sector, representing a wide range of clients, including banks, private equity and venture capital funds, asset managers, broker-dealers, insurance companies, trading platforms and exchanges, and distributed-ledger technology platforms. The firm’s multidisciplinary team around the world offers integrated legal solutions that help clients navigate the increasingly complex environment at the intersection of transactions, technology and regulation. DLA Piper is also at the forefront of providing legal counsel and business support to emerging proptech companies, investors and developers of innovative real estate technology in areas critical to both their short-term and ongoing success.

Opening the Floodgates to Islamic Finance in Kenya

By Walid Khan, Head of Real Estate and General Finance at Africa Law Partners.

In recent years, Islamic Finance has grown rapidly across the world. By conservative estimates, Islamic finance is estimated to have over $2.88 trillion of assets globally. It is offered in over 80 countries and is estimated to grow at around 10-15% a year. Despite a significant slowdown in 2020 due to the Covid-19 Pandemic, the market is expected to grow to $3.69 trillion by 2024.

Islamic finance also commonly referred to as Sharia-compliant finance, involves the delivery of financial services in conformity with the principles of sharia law. The fundamental principles that govern Islamic finance include the prohibition against riba (interest), gharar and maisir (contractual uncertainty and gambling), and haram industries (prohibited industries such as those related to pork products, pornography, or alcoholic beverages). Other central principles to Islamic finance include compliance with the Shariah (Islamic law), segregation of Islamic and conventional funds, accounting standards, and awareness campaigns.

Islamic finance deals with most financial services, including banking, insurance and capital markets. While it has been used to finance huge infrastructure projects, it has also been used to fund small and medium-sized enterprises thus having a positive impact on smaller businesses. In view of the massively important role played by small businesses to developing nations, Islamic finance has a far-reaching impact on the economy. Other advantages of Islamic finance include:

   1. Financial inclusion

World Bank defines financial inclusion as ‘Financial inclusion means that individuals and businesses have access to useful and affordable financial products and services that meet their needs – transactions, payments, savings, credit and insurance – delivered in a responsible and sustainable way.’ (Worldbank.org, 2017)

The conventional banking system is based on paying/receiving an interest which is strictly prohibited by Shariah Law. As such, Muslims refrain from conventional banking. This has resulted in many Muslims remaining unbanked and unable to access financial products and services. Islamic finance permits Muslims to participate and benefit in the financial system.

Despite being based on Shariah, Islamic finance is not restricted to Muslims only and is available to non-Muslims. In fact, there have been innumerable occasions where an Islamic finance product has been attractive to potential investors, even when they are not motivated by religious reasons.

   2. Financial Justice

Financial justice is a fundamental requirement in determining whether a product is shariah-compliant. Islamic finance requires that risk is shared between the bank and the customer. A lender must therefore carry a proportional share of the loss of a project if it expects to receive profits from the project. This brings about equitable distribution of income and wealth.

   3. Discourages speculation

Due to the fact that speculation is prohibited, investments are approached with a slower, insightful decision-making process with thorough audits, analyses and due diligence. This has resulted in reduction of risk and greater investment ability. This was evident during the global financial crisis when Islamic finance products proved less volatile.

While Islamic finance has been vibrant in Muslim-majority countries particularly in South-East Asia and the Middle-East, it has, in recent times, gained traction throughout the rest of the world particularly in the United Kingdom since the UK Government took a keen interest in the industry. Noting the benefits of Islamic finance, the UK Government developed a work programme to make the UK’s financial services regulations compatible with Islamic Finance. One such way was to accommodate Islamic finance products in existing legislation and regulations governing conventional financial instruments and putting Islamic products on the same tax footing as their conventional counterparts.

The latest Islamic Finance Country Index (2019) ranks the UK 17th of 48 countries in terms of its overall Islamic finance offering. This puts it in first place in Europe and in first place among non-Muslim-majority nations. Many firms, Islamic and non-Islamic, see London as an important Islamic finance global centre to such a great degree that products developed in London are being marketed in Muslim majority countries in the Middle East.

Kenya’s Islamic finance industry is regarded as somewhat developed with immense potential for growth. Kenya has made some legislative amendments and new regulatory frameworks that have brought about the development of Takaful Retirement Benefits Schemes, shariah-compliant finance products and taxation exemption for Islamic finance products. However, it seems that Kenya needs to do more to further stimulate the market. Per the Islamic Finance Country Index 2019 rankings, Kenya ranks 24th of the 48 countries. This is a drop from the 2018’s rankings which had Kenya at 21st. This appears to be a noteworthy setback as Kenya, East Africa’s largest economy, would want to position itself as the region’s Islamic banking hub to profit from its apparent benefits and provide its 5.2 million Muslims with better access to Islamic finance services.

Further, in order to meet the Big 4 Agenda and Vision 2030, Kenya should hasten structural, legal and regulatory reforms to further enable Islamic finance services and also begin issuing sukuks at the earliest possible time. Sukuk also referred to an Islamic bond, is an instrument for raising capital and is tradeable on the securities exchange. Sukuk may be used to finance projects around Vision 2030 and the Big 4 Agenda, such as infrastructure and health projects.

Enabling an Islamic finance environment will enable Kenya consolidate its status as the leading trade hub in the region and the gateway to East Africa. Kenya has already made significant strides at enhancing the ease of doing business in the country. The World Bank’s Ease of Doing Business Index 2020 ranked Kenya at number 56. This is an improvement from 2019, 2018, 2017 and 2016 where Kenya was ranked 61st, 80th, 91st and 108th respectively. Mauritius (13), Rwanda (38th) and Morocco (53rd) are the only African countries ranked ahead of Kenya.

There is need to open the floodgates to Islamic finance in Kenya. Industry stakeholders and regulators ought to collaborate to demystify Islamic finance by way of regular training and workshops on Islamic finance concepts. Kenya also requires supportive Government policies to create a fiscal and regulatory framework to broaden the market for Islamic finance products.

Africa Law Partners is well placed to advise on Islamic finance matters. For any assistance, please contact Walid Khan.

Jay Williams joins DLA Piper’s Structured Finance practice in New York

DLA Piper announced today that Jay Williams has joined the firm as a partner in its Structured Finance practice, based in New York.

Williams represents issuers, underwriters, investors and other market participants in a wide variety of structured finance transactions – including CLOs; secured lending facilities backed by loans, CRE assets and other asset classes; re-securitisations; and synthetic securitisations – as well as swaps, derivatives and repurchase agreements. He has extensive experience with regulatory capital relief transactions and other types of synthetic risk transfers and also advises private funds and their sponsors with respect to investments in distressed assets. Williams is dual-qualified, practicing both New York and English law.

“Jay is a fantastic addition to the firm who will immediately enhance our structured finance capabilities,” said John Cusack, US chair and global co-chair of DLA Piper’s Finance practice. “His extensive experience handling complex financial transactions increases our ability to meet the evolving needs of the market, and our global platform will be of significant benefit to his practice and clients.”

“We are continuing to build our wider finance practice, including structured finance, in New York and across the firm, and Jay’s skillset and experience providing guidance to highly sophisticated clients across multiple asset classes is an important part of that strategic initiative,” added Richard Hans, managing partner of the firm’s New York office.

“The addition of Jay to our structured finance team will greatly enhance our ability to continue to strengthen our position among the market leaders in US and European CLOs, as well as other important asset classes,” said Rich Reilly, head of DLA Piper’s Structured Finance practice.

Williams joins from Schulte Roth & Zabel LLP. He received his J.D. from Wake Forest School of Law, his LL.M., with distinction, from Georgetown University Law Center, his M.B.A. from the University of Chicago Booth School of Business, and his B.S.F.S. from Georgetown University’s School of Foreign Service.

CFOs anticipate return to growth and lasting change in 2021

Finance leaders expect a return to growth in 2021 with optimism rising to a record high, according to Deloitte’s latest CFO survey. Despite the surge in business optimism, half of CFOs do not expect demand for their own businesses to recover to pre-pandemic levels until the last quarter of 2021 or later.

The Deloitte CFO survey for Q4 2020, which gauges sentiment amongst the UK’s largest businesses, took place between 2nd December and 14th December 2020, so before new COVID restrictions announced on 19th December and the Brexit deal on 24th December.

A total of 90 CFOs participated in the latest survey, including CFOs of 12 FTSE 100 and 44 FTSE 250 companies. The combined market value of the UK-listed companies that participated is £308 billion, approximately 13% of the UK quoted equity market.

Revenues, risk appetite and economic landscape

There has been a sharp improvement in CFO expectations for UK corporates’ revenues this quarter with 71% expecting a rise over the next 12 months, up from 29% in Q3 2020, while over half (53%) of CFOs expect operating costs to rise. For the first time since 2015, a net balance of CFOs are expecting corporate operating margins to increase in the next year.

Risk appetite remains weak with only 19% believing it is a good time to take greater risk onto the balance sheet, however this is up from just 3% in Q1 2020.

Consistent with the idea of a return to growth CFOs’ expectations for inflation have risen markedly since Q3 2020. Over half of CFOs (59%) expect consumer price inflation to be at or above 1.6% in two years’ time, up from 36% three months ago.

While still showing a net negative balance, CFOs’ expectations for hiring, capital spending and discretionary spending have increased from the record lows seen in Q1 2020, with a strong uptick in each category in the last quarter. Expectations for hiring and spending are running higher than the levels seen between 2016 and mid-2019.

COVID and beyond

More than three quarters (78%) of finance leaders expect COVID-19 restrictions on movement and activity to continue through the first half of 2021, while 57% expect these measures to be removed permanently in Q3 2021.

CFOs believe that the pandemic is set to trigger a fundamental change in the business environment. An overwhelming net balance (98%) of CFOs expect flexible and home working to increase – with a five-fold increase in home working expected by 2025.

Similarly, 98% of CFOs expect levels of corporate and individual taxation to rise, two thirds (62%) anticipate higher regulation of the corporate sector and 59% see the size and role of government in the economy increasing.

Ian Stewart, chief economist at Deloitte, commented: “Boosted by the prospect of mass vaccination and growth, business sentiment surged this quarter with CFOs taking the most positive view on profit margins for the last five years. This rebound in sentiment occurred despite a backdrop of continued Brexit negotiations and with two thirds of CFOs believing that a no-deal outcome would have a severe or significant negative effect on the economy. In the three and a half years between the EU referendum and the pandemic CFOs have ranked Brexit as the top business risk for all but two quarters. The announcement of a deal after the survey closed is likely to have offered an end-year boost to CFO sentiment. The survey shows that in the first half of December, CFOs expected restrictions on movement and activity needed to combat COVID-19 to continue for the first half of this year. The announcement of further restrictions after the survey will clearly add to such concerns.

“Business leaders believe the pandemic will permanently change the business landscape. CFOs anticipate a five-fold increase in homeworking relative to pre-pandemic levels by 2025 and believe that the state will be both larger and more active in the long term.”

The impact of Brexit

CFOs think a no-deal Brexit would have been a far greater risk to the economy and to business than the actual outcome of a trade deal. Moreover, they saw either Brexit outcome as having a greater negative impact on the economy than on their own businesses. The large companies on our panel are more confident about their own ability to deal with Brexit than the wider economy’s.

Two thirds (66%) of CFOs saw a no-deal outcome as having a severe or significant negative effect on the economy and 18% expected a similarly negative impact on their own business. Just 20% of CFOs saw a trade deal as a major negative for the economy and this dropped to 7% in relation to their own business.

A majority (61%) of CFOs expect the post-Brexit points-based immigration system to act as somewhat of a drag on long-term economic growth. Around a quarter (27%) expect little or no effect, while 6% expect the new immigration system to support growth.

A net balance of 66% of CFOs expect both goods and services trade with the EU to decrease, while 77% expect a decrease in high-skilled immigration from the EU, with only 24% expecting an increase in skilled immigration from outside the EU.

Strategy and spending

CFOs remain in defensive mode with 49% and 46% respectively rating increasing cash flow and reducing costs as strong priorities. Meanwhile expansionary strategies have risen in popularity slightly since Q3, for example, around a quarter (28%) cite introducing new products, services or expanding into new markets as a priority for the year ahead.

Richard Houston, senior partner and chief executive of Deloitte UK, said: “The pandemic has triggered fundamental and lasting changes in business, with CFOs expecting rising levels of home-working, greater diversification of supply chains and increasing investment in technology.

“CFOs are optimistic about operating in this changing world, with a return to growth expected this year. However, with pandemic restrictions expected to be in place through the first half of this year and elevated uncertainty CFOs are maintaining defensive balance sheet positioning.

“The UK-EU trade deal ends over four years of uncertainty for business and is a far better outcome than the alternative of no-deal. Nonetheless, CFOs also recognise the challenges that leaving the EU may pose in the years ahead. The UK deal has very limited provisions for services, particularly for professional and financial services. These high productivity sectors are major UK successes and make vital contributions to jobs and prosperity. UK businesses urgently need additional clarity on key issues including financial equivalence as well as more information on the specific changes to other cross-border trading services.”