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Home Africa

Nigeria revised guidelines for the regulation & supervision of Microfinance

Seun Timi-Koleolu by Seun Timi-Koleolu
March 20, 2020
in Africa, Banking, Finance, Financial Inclusion, Legislation, Nigeria
Reading Time: 2 mins read
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The Central Bank of Nigeria (CBN) on March 3, released its revised Microfinance Bank (MFB) draft guidelines (the “Draft Revised Guidelines”). The Draft Revised Guidelines revises the increase in the minimum share capital for MFBs which was previously announced by the CBN in a notice released in October 2018; and expands the categories of MFBs, amongst other changes.

Although the guidelines are still in draft form, it is useful for MFBs and fintechs (who utilize MFB licenses) to take note of the changes proposed whilst assessing how it will affect their operations once it takes effect.

We have set out below, the major changes made to the Draft Revised Guidelines and how it differs from the Guidelines issued in 2012 (“2012 Guidelines”).

  1. Categories of MFBs

Under the 2012 Guidelines, the CBN split MFBs into 3 (three) categories namely Unit MFBs, State MFBs, and National MFBs. The Draft Revised Guidelines splits the Unit MFBs to Tier 1 and Tier 2. This brings the categories of MFBs to 4 (four) namely: Tier 1 Unit MFBs; Tier 2 Unit MFBs; State MFBs, and National MFBs.

The benefit of this revision is that Unit MFBs would no longer be restricted to one location. Tier 1 Unit MFBs would be permitted to operate in urban areas and have up to 4 (four) branches in addition to the head office, within 5 (five) Local Governments Areas (LGA) in the state. Tier 2 Unit MFBs would be permitted to have a head office and a branch within the same LGA. Note that Tier 2 MFBs are to operate in rural and unbanked/underbanked areas.

It is also useful to note that the number of branches State and National MFBs may establish at commencement is capped at 10 under the Draft Revised Guidelines. In the 2012 Guidelines, this is not capped.

  1. Financial Requirements

The capitalization requirement for each category of MFB in the Draft Revised Guidelines are as follows: Tier 1 Unit – 200 million Naira; Tier 2 Unit – 50 million Naira; State MFBs – 1 billion Naira; and National MFBs – 5 billion Naira.

With this revision, MFBs would have the option to apply for a Tier 2 Unit MFB license with a share capital requirement of 50 million Naira as opposed to the 200 million Naira minimum capital requirement for Unit MFBs stated in the MFB capitalization review notice earlier issued in October 2018.

  1. Licensing Requirements.

Under the Draft Revised Guidelines, promoters and investors of MFBs would be required to make presentations on the business case of the proposed MFBs before a formal application for an MFB licence. The CBN will also inspect the premises and facilities of MFBs prior to granting a final licence.

Conclusion

The tiered Unit MFB license would be a welcome development as it has the potential to include MFBs who are unable to meet the current 200 million Naira capital requirement. It would also allow MFBs reach more customers with the introduction of branches.

Notwithstanding this, it would be useful to see regulations that are tailored to the peculiar structure of digital banks and fintech businesses, as the regulation of this space is still subject to multiple interpretation by regulators of the available laws/regulations.

Seun Timi-Koleolu

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Tags: Bank regulationCBNCentral Bank of NigeriaFeatureMFBMicrobankMicrofinanceNigeriaSeun Timi-Koleoluнигерияنيجيرياナイジェリア尼日利亚
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Seun Timi-Koleolu

Seun Timi-Koleolu

Seun Timi-Koleolu is the Managing Partner of Nigeria’s Pavestones - a client focused, solution driven and commercially savvy law practice, providing innovative, quality, timely and tailored legal solutions. As a result of her passion for supporting the growth of businesses particularly companies utilising technology to solve problems, she works with a team of lawyers to assist such companies in understanding their regulatory terrain and in pushing past barriers to the success of their operations. She also advises these businesses on data privacy and the proper use of data to further their business. She has a Bachelor of Laws degree from the University of Warwick and a Masters in Corporate and Commercial law from the University College London.

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