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”).
- 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.
- 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.
- 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.
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.