The Central Bank of Nigeria (CBN) has reduced the amount of microcredit and retail transactions to be offered to customers by Microfinance Bank (MFBs), per transaction to N500,000 for the tier 2 Unit licence and N1 million for other categories.
This was stated in a circular to all microfinance banks, titled ‘Cessation of Non-permissible Activities by Microfinance Banks dated August 19, 2021, and signed by Ibrahim Tukur, for the financial policy and regulations department of the CBN.
The CBN stated in the circular that MFBs are prohibited from foreign exchange transactions as they are expected to primarily focus on providing financial services to retail and/or micro-clients.
Microcredit facilities the circular explained shall constitute a minimum of 80 percent of total loans portfolio for MFBs.
The banking sector regulator said it has observed the activities of some MFBs that have gone beyond the remit of their operating licenses by engaging in non-permissible activities especially wholesale banking, foreign exchange transactions and others.
Given the comparatively low capitalisation of MFBs, the CBN said dealing in wholesale and/or foreign exchange transactions are a significant risk with dire consequences for financial system stability.
“It has therefore become imperative to remind all MFBs to strictly comply with the extant revised regulatory and supervisory guidelines for microfinance banks in Nigeria 2012,” the circular stated.
Part of the circular further reads, “the CBN will continue to monitor developments in the MFB sector and apply severe regulatory sanctions for breaches of extant regulations, including revoking the license of non-compliant MFBs (in line with section 19 of the guidelines)”.
On March 18, 2019, the CBN reviewed the minimum capital requirements for microfinance banks, allowing for instalment payment and categorisation of Unit Microfinance into two of Tier 1 and Tier 2.
Consequently, tier 1 MFBs are to pay N200 million as minimum capital requirement, while tier 2 are expected to pay N50 million.