Microfinance banks in Nigeria will now operate under a new set of rules as the Central Bank of Nigeria (CBN) unveils the “Revised Regulatory and Supervisory Guidelines for Micro-Finance Banks (MFBs)” to reinforce its operations.
While noting that MFB holds the potential key to reducing poverty and fostering economic growth and development especially in the attainment of Nigeria’s Vision 20: 2020, the apex bank said the new rules will help reduce glitches in the practice of micro-finance operations in the country.
The MFBs as well as the deposit money banks have in the past been engaged in tussle with the apex bank especially on the issues of ethics, governance and exceeding of limits allowable in the enabling Acts governing their operations. The CBN insists on removing anomaly and enforcing sanity in the sub-sector.
According to the apex bank, an exposition on the activities of the operations of MFBs in the country in the last six years, called for the urgent need for the revision of the guidelines.
“The implementation of the microfinance policy over the past six years and the experience gained, underscore the need for the review of the existing regulatory and supervisory guidelines.”
The rules governing MFBs were revised to ensure efficient and effective microfinance delivery through the development of the appropriate framework based on the particular features and associated risks.
“This second edition addresses current realities and developments in the sub-sector. This document is, therefore, aimed at promoting innovative, rapid and balanced growth of the industry, leveraging on global best practice in microfinance banking,” it said.
The CBN also revealed that it had decided to collaborate with other agencies of the government in monitoring the activities of financial corporations and non-governmental organisations that have significant operations due to their micro savings and deposit taking activities.
“Collaboration between CBN, Nigeria Deposit Insurance Corporation, Securities and Exchange Commission, National Insurance Commission Corporate Affairs Commission, National Association of Microfinance Banks, Associations of Non-Bank Microfinance Institutions in Nigeria and other relevant agencies shall be promoted to reduce arbitrage in the practice of micro-finance in the country.”
According to the revised guidelines, any of these institutions that attains total assets of N20 million (approx.US$ 128,000) or a total membership of 2000 would be encouraged to transform to the relevant MFB.
“In general, the guidelines that adequately address the features and risks of microfinance would effectively support the orderly development and sustainability of the institutions to enable them to achieve microfinance objectives of financial inclusion and poverty alleviation.
“These guidelines recognise the distinctiveness of micro clients, ownership structure of the institutions, their credit methodology, and the central position of savings/deposits in the intermediation process. It also adopts measures to ensure the soundness and safety of the institutions, and the protection of depositors, especially low-income clients. Also, it defines institution types, loan documentation, portfolio classification, loan loss provision and write-offs, amongst others, and provides the basis for the establishment, operations, regulation and supervision of microfinance banks, and institutions.”
These supervisory and regulatory guidelines are issued by the CBN in exercise of the powers conferred on it by the provision of Section 33 subsection (1)(b) of the CBN Act 7 of 2007 and in pursuance of the provisions of Section 61-63 of the Banks and Other Financial Institutions Act (BOFIA) 25 of 1991 (as amended).