CBN’s draft guideline seeks to tightens regulation on MFBs, ban FX transactions

The Central Bank of Nigeria  has issued the revised supervisory and regulatory guidelines for micro finance banks in Nigeria to support the development and sustainability of the sector.

The apex bank reiterates that microfinance banks (MFBs) are not allow to engage in foreign exchange dealings, or international transactions including international electronic fund transfer.

In a circular, CBN hinted about that the need to reposition and strengthen MFB towards improved performance had become apparent as revealed from the report of a recent review of the subsector.

“Accordingly, the 2012 guidelines have been reviewed to strengthen and complement other on-going reform in the MFB sector.

“An exposure draft of the review guidelines is hereby issued for comments and observations.”

“The current review seeks to engender strong and financially sustainable microfinance banks, enhance the safety and soundness of the microfinance sub-sector”, CBN noted in the draft guideline.

It said the guideline covers categories of microfinance banks, ownership and licensing requirements, permissible and prohibited activities, funding, corporate governance, prudential and anti-money laundering requirements, amongst others.

The guideline stated that MFBs shall not engage in foreign currency transactions, except foreign currency borrowings.

The CBN stated in the draft that no MFB is allow to engage in international commercial papers; international corporate finance; and International electronic funds transfer.

Non-permissible activities also include clearing house activities and collection of third party cheques and other instruments for the purpose of clearing through correspondent banks.

Going further, MFBs would be guided to desist from dealing in land for speculative purposes; and in real estate except for its use as office accommodation.

The prohibited activities include provision of any facility for speculative purposes.

Leasing, renting, and sale/purchase of assets of any kind with related parties and/or significant shareholders (five per cent or more of the equity) of the MFB, without the prior written approval of the CBN.

In addition, financing of any illegal activities; and any activity other than those permitted or as may be prescribed by the Central Bank of Nigeria from time to time

Meanwhile, the CBN specified that engaging in activities outside the approved business would attract a fine of N500,000 and forfeiture of the estimated profit from the engagement.

“Failure to obtain the CBN approval before going into any form of restructuring or reorganisation would attract a fine of N500,000 regardless of the category of the MFB”, the draft guideline reads.

The draft, however, maintained the required capital for the MFBs to operate.

The CBN had stated that the Tier 2 unit microfinance banks must have a minimum capital of N50 million.

Tier 1 would maintain the N200 million minimum capital introduced for unit microfinance banks in October 2018.

It stated that Tier 1 unit microfinance banks must meet N100 million capital threshold by April 2020 and N200 million by April 2021.

Tier 2 unit microfinance banks, it added, must meet a N35 million capital threshold by April 2020 and N50 million by April 2021.

The CBN stated that state microfinance banks must increase their capital to N500 million by April 2020 and N1 billion by April 2021.

A national microfinance bank must hold a capital of N3.5 billion by April 2020 and N5 billion by April 2021, it added.

It would be recalled that prior to 2018 recapitalisation program, the minimum capital base for national microfinance banks was N2 billion, state microfinance banks was N100 million, while the unit microfinance banks had a minimum capital requirement of N20 million.

CBN’s draft guideline seeks to tightens regulation on MFBs, ban FX transactions