REPURCHASE AGREEMENTS: A NEW BOOST FOR ACCESSING FINANCE
REPURCHASE AGREEMENTS: A NEW BOOST FOR ACCESSING FINANCE
Access to the various financing products in the financial services industry is often limited by the availability of quality collateral assets and the ability of borrowers to meet the generally acceptable levels of compliance and eligibility for financing.
In order to develop the capacity of the financial services sector to finance the real sector of the economy, it is important to have flexible financing options and an adequate collateral management system. This will facilitate access to financing for the real sector of the economy and will provide the required comfort to financial institutions and credit providers that their loan assets are satisfactorily secured. The Central Bank of Nigeria’s release in April, 2021 of the new Guidelines for the Conduct of Repurchase Transactions is a step in the right direction. The recent development in repurchase transaction regulation provides a new boost for Repurchase transactions in the Nigerian money market and this article seeks to highlight the salient features of repurchase transaction regulation in Nigeria.
A repurchase agreement (“Repo”) is a short-term finance instrument that enables money market participants to access alternative source of quick financing. It is the sale of securities with a simultaneous agreement to repurchase those securities at a specified price on a predetermined future date. Repo can also be categorized as securities lending by virtue of Section 318 of the Investment and Securities Act (“ISA”) which defines securities lending as the temporary exchange of securities, generally for cash or other securities of at least an equivalent value, with an obligation to redeliver a like quantity of the same securities on a future date and includes securities loans, repurchase agreements (Repo), and self-buy-back agreements.
The Central Bank of Nigeria (“CBN”) recently issued new Guidelines for the conduct of Repo transactions in Nigeria essentially replacing the 2012 Guidelines. Repo has been an important financing option for banks and other eligible participants like discount houses. The new CBN Repo Guidelines underscores the importance of repos in the market as the CBN seeks to strengthen the institutional mechanisms for its use.