CBN raises minimum capital for Micro-Finance Banks

In a circular to MFBs entitled, “Review of minimum capital requirement for Microfinance Banks in Nigeria” posted on its website, which was signed by the Director, Financial Policy and Regulation Department, Mr. Kevin Amugo, the apex bank said it made the move in order to strengthen the MFB sub sector for improved performance. MFBs with national licence operate in all the states of the Federation while MFBs with state licence operate within a state and are allowed to have cash centres within the state. However, the bulk of the MFBs are Unit MFBs which cannot have cash centres besides the main office. The minimum paid up capital for Unit MFBs has been hiked to N200 million, while State MFBs and National MFBs will require minimum paid up capital of N1 billion and N5 billion respectively, to operate in the country. Previously, a Unit license MFB requires N20 million minimum paid up capital to operate; State MFBs license requires N100 million minimum paid up capital, while a National MFB needs N2 billion as minimum paid up capital to operate. Analysts note that more than 80 per cent of the over 700 licensed MFBs in the country are Unit MFBs. The CBN, however, stated that while the new minimum capital requirement takes immediate effect for new applications, existing MFBs are required to fully comply with effect from April 1, 2020. The regulator also stated: “To meet these requirements, existing microfinance banks are expected to explore the possibility of mergers and acquisitions and/or direct injection of funds,” adding that the Revised Regulatory and Supervisory Guidelines for MFBs, Code of Corporate Governance for the sub sector and sector¬ specific prudential guidelines for MFBs, “would be issued in due course.” In addition, the CBN stated that MFBs that meet the new capital requirements, “as well as demonstrate the existence of strong corporate governance in their operations” would be allowed to open account at the CBN office within their state of operation. It disclosed: “Such institutions would also be channels for micro funding activities of the CBN and the Development Bank of Nigeria.” According to the CBN, the MFB sub sector has been contending with challenges such as, “inadequate capital base, weak corporate governance, ineffective risk management practices, dearth of requisite capacity and mission drift.” Just last month, the CBN issued licence revocation notice for 154 MFBs, six Primary Mortgage Banks (PMBs) and 22 Finance Companies (FCs). The list of the affected MFBs, released by the banking watchdog, showed that 62 have closed shop, 74 were insolvent, 12 were terminally distressed, while six had gone into voluntary liquidation. Meanwhile, the National Association of Micro Finance Banks yesterday said that nine out of the 34 micro finance banks in Niger State have lost their operational banking licences. Mr. Sado Daniel, North Central Secretary of the association, made the remark in Bida while inaugurating a micro-finance bank established by the Federal Polytechnic, Bida. “These micro-finance banks lost their licences because they fell short during the regulation exercise carried out by the Central Bank of Nigeria (CBN),” he said. Similarly, Hajia Hajara Mohammed, a representative of the CBN in Minna, said that insider abuse was another huge factor that contributed to the failure of micro-finance banks across the country. Earlier, Dr. Abubakar Dzukogi, the Rector of the polytechnic, said that the micro-finance bank was established with a capital base of N20 million, adding that it would be increased to N50 million by the year 2019.]]>