CBN to sanction microfinance banks over forex transactions

The Central Bank of Nigeria (CBN) has indicated that it will apply severe sanctions on Microfinance Banks (MFBs) that engage in foreign exchange (forex) transactions and wholesale banking in defiance of extant regulation.

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 clearly in the circular that MFBs are prohibited from foreign exchange transactions; rather they are to primarily focus on providing financial services to retail and/or micro-clients.

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 is 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.

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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)”.

In the circular, the has limited 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.

Microcredit facilities the circular explained shall constitute a minimum of 80 percent of the total loans portfolio for MFBs.

A microloan is a facility granted to the operators of microenterprises, such as peasant farmers, artisans, fishermen, youths, women, senior citizens, and non-salaried workers in the formal and informal sectors.

The loans are usually unsecured but typically granted on the basis of the applicant’s character and the combined cash flow of the business and household.

On March 18, 2019, the CBN reviewed the minimum capital requirements for microfinance banks, allowing for installment payment and categorisation of Unit Microfinance into two of Tier 1 and Tier 2.

Consequently, tier 1 MFBs are to pay N200 million as a minimum capital requirement, while tier 2 are expected to pay N50 million.

Hope Moses-Ashike

Hope Moses-Ashike is an Associate Editor, Banking and Finance, with more than a decade of experience reporting on Nigeria’s financial system and broader economy. She closely tracks market movements, monetary policy decisions, company disclosures, regulatory actions, economic indicators, and global developments, and interprets what they mean for businesses, investors, policymakers, and households. Her reporting helps readers understand complex issues such as inflation trends, foreign exchange market dynamics, interest rate decisions, bank performance, and investment risks. She also covers major international events and periodically travels to Washington, D.C., to report on the World Bank/IMF Spring and Annual Meetings. Her dedication to financial journalism has earned her multiple recognitions and invitations to high-level professional development programmes. She is an alumna of the International Visitors Leadership Programme (IVLP) in the United States and holds an Advanced Financial Journalism Certificate from the Press Association Training in London, UK. Her other notable achievements include completing the Lagos Business School CMC Programme, the Bloomberg Media Africa Initiative Programme, and a Master Class in Journalism at Rhodes University in South Africa.