The Legal And Regulatory Framework For Private Debt Funds In Nigeria

Introduction

Many small- and mid-sized businesses struggle to access traditional bank financing due to strict lending requirements, high collateral demands, and limited credit availability. At the same time, investors seeking stable, predictable returns have few reliable options in the public markets.

Private debt, or private credit, helps bridge this gap by enabling non-bank lenders to provide capital directly to businesses, offering flexible terms for borrowers and steady interest income for investors. Globally, private credit has become a rapidly growing alternative asset class, with the market valued at USD 1.5 trillion in 2024 and projected to reach USD 2.6 trillion by 2029.

To scale this model, private debt funds have emerged. In Nigeria, the launch of locally denominated funds, including the pioneer FCMB-TLG Private Debt Fund Series 1, demonstrates growing investor interest and a regulatory environment that increasingly supports private debt.

In this newsletter, we highlight the legal and regulatory frameworks for private debt funds in Nigeria.

1. What are the Legal Frameworks for Private Debt Funds in Nigeria?

Private debt funds are pooled investment vehicles that raise capital from institutional and high-net-worth investors to lend directly to businesses. Private debt funds in Nigeria typically operate through collective investment schemes (CIS). structured as a trust and incorporated fund vehicle (or in the case of private, unregulated funds as limited partnerships and unincorporated joint ventures).

These fund structures as mentioned above, operate within the legal scope of the Investment and Securities Act (ISA) 2025, particularly Sections 150–197 (the Rules on Collective Investment Schemes, and other subsidiary rules and regulations issued by the Securities and Exchange Commission (SEC)), which govern collective and alternative investment schemes. Under this framework, the following participants play essential roles:

• Fund Manager: The fund manager is the central operator of a private debt fund, responsible for developing and executing the fund's investment strategy, originating and structuring loan transactions, and overseeing the performance of the portfolio companies. In addition to managing investments, the fund manager acts as the fund's sponsor, submitting the registration application to the SEC and ensuring full compliance with all regulatory requirements under the ISA 2025 and the relevant SEC rules.

• Trustees: The trustees are fiduciaries acting on behalf of investors. They monitor the fund's operations, enforce compliance with governing documents and SEC rules, and safeguard investor interests by providing independent oversight.

• Custodian: The custodian is charged with holding the fund's assets — whether cash, securities, or collateral pledged by borrowers — in safe custody. Custodians ensure segregation of assets and prevent misuse, thereby protecting investor capital.

• Registrar: The registrar maintains accurate records of investors, processes subscriptions and redemptions, and facilitates communication with unit holders. This role ensures transparency and proper documentation of investor rights.

• Auditors: The auditors independently review and certify the fund's annual accounts. Their work provides credibility to financial statements and reinforces investor confidence in the fund's governance.

• Investment Committee: The investment committee oversees the fund's investment decisions, ensuring that transactions align with the fund's objectives, risk management policies, and overall strategy. It balances the discretion of the manager with structured oversight.

• Legal Advisers: The legal advisers draft and review the fund's documentation — including the trust deed, prospectus, and partnership agreements — and ensure compliance with the Investments and Securities Act and SEC rules.

• Investors: The investors, whether institutional or high-net-worth inpiduals, provide the capital that fuels the fund. In return, they receive fixed-income returns through interest payments and rely on the governance framework and disclosures mandated by the SEC to protect their investments.

All of the participants listed above, other than the investors, must be registered with the SEC as capital market operators.

2. What are the Regulatory Requirements for Establishing and Operating a Private Debt Fund in Nigeria?

To establish and operate a private debt fund, the fund must obtain registration and authorization, or a no-objection certificate, from the SEC and comply with all ongoing regulatory requirements under the ISA 2025 and the relevant SEC rules.

1. What are the Registration Requirements for Private Debt Funds in Nigeria? To obtain authorization to establish and operate a private debt fund, the following must be submitted to the SEC:
   • Application to the SEC using relevant SEC Forms
   • Fund Information Memorandum/Prospectus (two copies)
   • Trust Deed or Limited Partnership Agreement (two copies)
   • Certificate of Incorporation of the Fund Manager
   • Sworn undertaking to file quarterly returns
   • Evidence of payment of authorization fees
   • Notarized Certificate of Compliance
   • Full and consistent disclosure across all documents
2. What are the Ongoing Compliance Requirements for Private Debt Funds in Nigeria? Private debt funds in Nigeria are subject to ongoing compliance requirements under the ISA) 2025 and the SEC rules governing collective investment schemes and alternative investment vehicles. These obligations are designed to ensure transparency, investor protection, and market integrity. Some key regulatory obligations include:
   • Maintenance of annual audited financial statements
   • Regular investor meetings
   • Quarterly reporting to the SEC
   • Periodic independent valuation of fund assets
   • Establishment and maintenance of an investment committee
   • Filing of registration documents and offering circulars
   • Compliance with applicable SEC rules and regulations.

   Conclusion

   Given the challenges businesses face in accessing debt financing from traditional lenders, private debt funds are well-positioned to transform Nigeria's financing landscape. The ISA 2025 and SEC rules provide a solid legal and regulatory framework for fund establishment, governance, investor protection, and market transparency. With growing private capital activity and the successful launch of Nigeria's first local-currency private debt fund, the sector is positioned for substantial growth and increasing impact on the economy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.