MFBs selling forex to lose CBN license

Posted by Godwin Onyemaechi

The Central Bank of Nigeria (CBN) has issued a stern warning to all microfinance banks operating in the country to desist from engaging in activities beyond their operating limits or risk losing their license.

CBN issued the warning in a circular signed by Ibrahim Tukur of CBN Financial policy and Regulation Department, titled Cessation of Non-Permissible Activities by Microfinance Banks issued at the weekend.

According to the apex bank, certain microfinance banks now conduct wholesale banking, foreign exchange operations, and other activities that represent a substantial danger to financial system stability.

Part of the statement reads: “given the comparatively low capitalization of MFBs, 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 Guidelines).
“For the avoidance of doubt and consistent with the permissible activities of specialized micro institutions: MFBs are strictly prohibited from foreign exchange transactions. MFBs are to primarily focus on providing financial services to retail and/or micro-clients.

Others are, “Micro credit and retail transactions carried out by MFBs are limited to N500,000 per transaction for Tier 2 Unit MFBs and N 1,000,000 for other categories and Micro credit facilities shall constitute a minimum of 80 per cent of total loans portfolio for MFBs.
CBN, therefore, warned that it will continue to monitor developments in the MFB sector and apply severe regulatory sanctions for breaches of extant regulations.

“Our sanction will include revoking the license of non-compliant MFBs (in line with Section 19 of the Guidelines),” CBN said