The Central Bank of Nigeria’s (CBN) recent crackdown on 46 microfinance banks has reignited industry calls to overhaul the country’s outdated microfinance guidelines amid shifting economic realities.
The latest regulatory action, which reduced the number of active microfinance banks in Nigeria to 962 from 1,008, came as the CBN intensified efforts to strengthen the resilience of the sector, protect depositors and ensure compliance with prudential standards.
The affected institutions lost their licences after failing to meet regulatory requirements for continued operation. According to the CBN, some of the reasons for the revocation included insufficient assets to meet liabilities, closure of operations without regulatory approval, inactivity and cessation of financial intermediation, failure to commence operations within 12 months of licence approval and failure to maintain the minimum capital funds unimpaired by losses.
The Nigeria Deposit Insurance Corporation (NDIC) has since commenced the verification and payment of insured deposits to customers of the failed institutions after taking over the banks as their statutory liquidator. The corporation said the exercise is intended to ensure an orderly resolution process and preserve confidence in Nigeria’s financial system.
While operators have largely welcomed the CBN’s supervisory actions, they say the recent wave of licence revocations also presents an opportunity to modernise aspects of the regulatory framework that have remained largely unchanged despite significant shifts in the economy.
The CBN last revised the Regulatory and Supervisory Guidelines for Microfinance Banks in 2013 to address implementation challenges associated with the 2005 Microfinance Policy and to align the industry with global best practices.
Five years later, in October 2018, the apex bank significantly raised the minimum capital requirements for microfinance banks, increasing the threshold for unit microfinance banks from N20 million to N200 million, state microfinance banks from N100 million to N1 billion and national microfinance banks from N2 billion to N5 billion.
However, industry leaders believe that while the regulatory architecture remains robust, many of the operational provisions require periodic review to keep pace with inflation, currency depreciation and changing business realities.
Kazeem Olanrewaju, group chief executive officer of Alert Group, described Nigeria’s regulatory environment for microfinance banking as one of the strongest on the continent.
“Having worked across different countries, I can confidently say that the regulatory framework is robust, strong and continues to improve, which is encouraging for the sector,” he said.
According to him, the issue is not with the framework itself but with the frequency of its review.
“If there is one area where I would like to see further improvement, it would be in ensuring that regulations are updated more frequently to reflect prevailing economic realities,” Olanrewaju said.
He noted that some regulatory thresholds, particularly those relating to the definition and limits of microloans, have remained unchanged for long periods despite persistent inflation, currency depreciation and the declining purchasing power of the naira.
“When regulations are introduced, they are based on the prevailing exchange rate, inflation level and overall economic environment. As these variables change, the relevant thresholds and limits should also be reviewed to ensure they remain practical and effective,” he said.
According to him, updating operational provisions should not be interpreted as changing the regulatory framework itself.
“This is not about changing the regulatory framework itself, which is fundamentally sound, but about keeping it current. Just as markets evolve, policies must also adapt to remain relevant,” he said.
Olanrewaju credited the CBN with strengthening supervision of the industry, saying public confidence in microfinance banks has improved considerably over the years.
“The microfinance banking subsector is stronger today, public confidence has improved significantly, and the industry’s reputation is much better than it was in the past. We are now seeing several microfinance banks with total assets running into trillions of naira, a reflection of the confidence that sound regulation has inspired among customers and investors,” he said.
He added that stronger engagement between regulators and operators has also improved policy implementation.
“Today, there is greater engagement and regular dialogue through stakeholder meetings, allowing operators to provide feedback before new policies are implemented. This collaborative approach is far better than in the past, when regulations were sometimes introduced with little consultation, making implementation more difficult,” he said.
Usman Onoja, chairman of Lovonus Microfinance Bank, also believes that the recent licence revocations should prompt broader conversations about the future of microfinance regulation rather than focusing solely on recapitalisation.
“The issue is not far-fetched. We have seen many microfinance bank licences issued over the years, yet a significant number of those institutions never commenced operations. Even among those that did, many struggled because of the challenges facing the sector,” he said.
According to him, despite the large number of licensed microfinance banks over the years, Nigeria continues to face significant financial inclusion challenges, raising questions about whether the existing framework is delivering the intended outcomes.
Onoja observed that although the CBN revised capital requirements in 2018, there has been little change to many of the operational guidelines governing the industry.
“Beyond increasing minimum capital requirements, I do not believe there has been any major reform of the microfinance banking framework since it was introduced around 2010 and 2011. A lot has changed in the Nigerian economy since then, particularly the depreciation of the naira and the sharp rise in inflation, yet many of the operational guidelines have remained largely the same,” he said.
He argued that reform should go beyond raising capital thresholds.
“When people talk about reforms, the discussion often centres on recapitalisation. While higher capital is important because of the declining value of the currency, reform should go beyond that. The operating environment has changed significantly, and regulations should reflect those realities,” Onoja said.
According to him, inflation has fundamentally altered the economics of microfinance lending.
“Years ago, a microfinance bank could provide loans of N50,000, N100,000 or N200,000 to petty traders, and those amounts were sufficient to support small businesses. Today, such sums have little economic value because inflation has eroded purchasing power. Businesses require much larger facilities to finance their operations,” he said.
He noted that the lending model has also evolved, with many microfinance banks increasingly providing facilities of N1 million or N2 million to distributors and small business operators, while traditional group lending has gradually given way to more individualised lending structures.
“These changes in the market demonstrate why the regulatory framework needs to be reviewed periodically so that it remains aligned with current economic realities and supports the goal of expanding financial inclusion,” he said.
Nigeria currently has 962 active microfinance banks, comprising eight national, 115 state and 839 unit microfinance banks.
While the CBN has maintained that the recent licence revocations are aimed at protecting depositors, strengthening financial stability and ensuring compliance with regulatory standards, operators believe the latest developments also provide an opportunity to periodically refine the operational guidelines governing the industry. They argue that preserving a robust regulatory framework while updating it to reflect evolving economic conditions will better position microfinance banks to support financial inclusion, serve small businesses and contribute more effectively to Nigeria’s economic development.
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