Trade Finance Agreement (Nigeria)

A Trade Finance Agreement in Nigeria governs the relationship between the parties by fixing what each must do.

Trade finance in Nigeria is regulated primarily by the Banks and Other Financial Institutions Act 2020 (BOFIA 2020), which replaced the Banks and Other Financial Institutions Act 1991 and consolidated the regulatory framework for Nigerian commercial banks and other financial institutions. The Central Bank of Nigeria (CBN) issues specific circulars and guidelines governing trade finance, including the CBN Trade and Exchange Department's guidelines on foreign exchange for trade transactions, Form M (the mandatory import declaration form), Form NXP (the mandatory export declaration form), and the CBN Guidelines on Letters of Credit. The CBN Foreign Exchange (Monitoring and Miscellaneous Provisions) Act (FEMMA) (Cap F34, LFN 2004) governs the foreign exchange aspects of international trade transactions.

Letters of credit issued by Nigerian banks are governed by the Uniform Customs and Practice for Documentary Credits (UCP 600), published by the International Chamber of Commerce (ICC), as incorporated by reference in the LC terms. The UCP 600 is widely accepted by Nigerian banks and is recognised in Nigerian courts as applicable international practice for LC disputes. Bills of lading and shipping documents used in Nigerian import and export transactions are governed by the Bills of Lading Act (Cap B10, LFN 2004) and international conventions incorporated into Nigerian law.

The Nigeria Customs Service and the Nigerian Ports Authority (NPA) play key roles in trade finance transactions — the Nigeria Customs Service processes import declarations through the Nigeria Integrated Customs Information System (NICIS), and the Nigeria Ports Authority manages port access and cargo clearance. The Trade Finance Agreement must address the responsibilities of the trader regarding customs compliance and the bank's rights where customs irregularities arise.

Under Section 2 of BOFIA 2020, all banks providing trade finance facilities must hold a valid licence from the CBN. Section 14 of FEMMA (Cap F34, LFN 2004) requires exporters to repatriate export proceeds through the Nigerian banking system within 180 days. The Companies and Allied Matters Act 2020 (CAMA) governs corporate capacity to enter trade finance agreements, with the Corporate Affairs Commission (CAC) maintaining the register of companies. The Nigeria Data Protection Regulation (NDPR) 2019, enforced by the Nigeria Data Protection Commission (NDPC), applies to personal data processed in the KYC and customer onboarding procedures required under the CBN KYC Regulations 2013. The Federal Inland Revenue Service (FIRS) administers stamp duty and withholding tax obligations under the Stamp Duties Act (Cap S8, LFN 2004) and the Companies Income Tax Act. Disputes under a Trade Finance Agreement are heard by the Federal High Court, which has exclusive jurisdiction over banking and foreign exchange matters under Section 251(1)(d) of the Constitution of the Federal Republic of Nigeria 1999. The National Industrial Court of Nigeria (NICN) has jurisdiction over any employment disputes arising from trade finance operations. The Securities and Exchange Commission (SEC Nigeria) regulates capital market aspects where trade finance involves securities. The Nigerian Export-Import Bank (NEXIM) provides export credit insurance and guarantees under the Nigerian Export-Import Bank Act 1991. The Secured Transactions in Movable Assets Act 2017 and the National Collateral Registry framework, administered by the CBN, govern the registration of security interests in movable collateral pledged under trade finance facilities. Parties executing a Trade Finance Agreement in Nigeria should confirm the document reflects current law and that all CBN-prescribed forms, including Form M and Form NXP, have been obtained before drawing on any facility.

A Trade Finance Agreement in Nigeria is needed whenever an importer or exporter requires a bank or financial institution to support payment or provide financing for international or domestic trade transactions.

A Trade Finance Agreement is required when a Nigerian importer applies to their commercial bank for a Letter of Credit (LC) to pay a foreign supplier — the LC facility requires a master agreement defining the importer's credit limit, the collateral (such as a registered debenture over company assets or a cash deposit), the documentary conditions, and the bank's recourse rights if the importer fails to reimburse the bank after the LC is drawn.

A Trade Finance Agreement is needed when a Nigerian exporter applies for pre-shipment finance from their bank — an advance against a confirmed export order enabling the exporter to procure raw materials and produce goods before receiving payment — governed by the CBN Export Finance Guidelines and the Nigerian Export-Import Bank (NEXIM) export finance programmes.

A Trade Finance Agreement is required when a Nigerian importer uses a documentary collection (Documents Against Payment or Documents Against Acceptance) arrangement rather than an LC, where the bank acts as collecting agent to present shipping documents to the importer against payment or acceptance of a bill of exchange under the URC 522 (ICC Uniform Rules for Collections).

A Trade Finance Agreement is needed when a foreign supplier requires a Nigerian bank to issue a performance bond or advance payment guarantee on behalf of a Nigerian buyer under an international supply contract, as security for the buyer's performance obligations under the contract.

A Trade Finance Agreement is required when a Nigerian commodities trader (dealing in cocoa, sesame, cashew, or other agricultural export commodities) seeks warehouse receipt financing from a bank, using stored commodities as collateral under the Collateral Registry framework established by the Secured Transactions in Moveable Assets Act 2017.

Parties in Nigeria should prepare a Trade Finance Agreement proactively rather than waiting for a dispute to arise. Nigerian courts, including the Federal High Court and state High Courts, interpret agreements based on written terms. The CBN requires banks to comply with the Know Your Customer (KYC) Regulations 2013 and the Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT) Regulations 2022 before extending any trade finance facility. The Nigeria Financial Intelligence Unit (NFIU), established under the NFIU Act 2018, monitors suspicious trade finance transactions for money laundering red flags. The Federal Inland Revenue Service (FIRS) administers withholding tax, VAT at 7.5% under the VAT Act (Cap V1, LFN 2004), and stamp duty obligations arising from trade finance agreements. The Nigeria Data Protection Regulation (NDPR) 2019, enforced by the Nigeria Data Protection Commission (NDPC), governs personal data collected during the facility application process. Where the trade finance transaction involves regulated goods — such as petroleum products (NUPRC/NMDPRA approval), pharmaceuticals (NAFDAC clearance), or agricultural commodities (NAQS certification) — prior approval from the relevant authority must be obtained before the facility is drawn.

A properly drafted Trade Finance Agreement in Nigeria must contain the following essential elements.

Parties: Full legal names, CAMA 2020 RC numbers, and registered addresses of the bank (or financial institution) and the trader (importer or exporter). For foreign counterparty banks involved in LC confirmations, the agreement should reference the correspondent banking relationship.

Facility Type and Limit: The specific trade finance facility or facilities being made available — LC facility, import finance, export finance, documentary collection, or bond/guarantee — and the aggregate credit limit in Nigerian Naira (NGN) or foreign currency (USD, EUR, GBP) as approved by the bank's credit committee under BOFIA 2020 and CBN guidelines.

CBN Form M / Form NXP: For LC facilities covering imports, the agreement must reference the mandatory completion of CBN Form M (import declaration) at the CBN Trade and Exchange Department before each LC can be established. For export finance, CBN Form NXP must be completed. Failure to obtain Form M before establishing an LC is a violation of the CBN Foreign Exchange guidelines.

Collateral and Security: The collateral provided by the trader to secure the facility — including cash margin (typically 10–100% of the LC value depending on the trader's credit rating), a registered debenture over the company's assets, a personal guarantee from the directors, or a legal mortgage over real property (subject to governor's consent under the Land Use Act 1978).

Documentary Conditions: The documents required to be presented under an LC — typically a bill of lading, commercial invoice, packing list, certificate of origin, and insurance certificate — consistent with UCP 600 requirements. The agreement should address the bank's liability for discrepant documents and the trader's obligation to waive or accept discrepancies.

Interest and Charges: The interest rate on any deferred payment or import finance facility (expressed as an annual rate above the CBN Monetary Policy Rate (MPR)), bank charges, LC establishment fees, amendment fees, and SWIFT charges, all in Nigerian Naira or the applicable foreign currency.

Foreign Exchange: How the bank will source the foreign exchange for LC payments — through the CBN-approved foreign exchange market, the Investors' and Exporters' (I&E) FX Window, or the parallel market (with applicable CBN restrictions) — and the FX rate applicable to the transaction at the time of payment.

Compliance and governing law provisions are essential in a Nigeria Trade Finance Agreement. Data Protection: the Nigeria Data Protection Regulation (NDPR) 2019, enforced by the Nigeria Data Protection Commission (NDPC), requires a lawful basis for processing personal data collected during KYC and credit assessment. AML/CFT: the bank must comply with the CBN AML/CFT Regulations 2022 and file Suspicious Transaction Reports (STRs) with the Nigeria Financial Intelligence Unit (NFIU) under the Money Laundering (Prevention and Prohibition) Act 2022. Stamp Duty: Section 4 of the Stamp Duties Act (Cap S8, LFN 2004) requires the agreement to be stamped; the Federal Inland Revenue Service (FIRS) collects stamp duty on agreements between corporate entities. Governing Law: specify Federal Republic of Nigeria law; the Federal High Court has exclusive jurisdiction under Section 251(1)(d) of the 1999 Constitution over banking and foreign exchange matters. Dispute Resolution: parties may include an arbitration clause referring disputes to the Lagos Court of Arbitration (LCA) or the Regional Centre for International Commercial Arbitration Lagos (RCICAL) before resorting to the Federal High Court or state High Courts. Securities and Exchange Commission (SEC Nigeria) oversight applies where any element of the trade finance structure involves a capital market instrument. Forms-legal.com provides this template as a starting point for Nigeria-compliant trade finance documentation. The National Industrial Court of Nigeria (NICN) handles any employment disputes arising between trade finance officers and their employers. Under Section 14 of the Banks and Other Financial Institutions Act 2020 (BOFIA 2020), all trade finance facilities are subject to CBN prudential guidelines on credit risk classification and provisioning.