Central Bank Draft Guidelines for the regulation and supervision of microfinance banks in Nigeria

The Central Bank of Nigeria (CBN) has published the Guidelines for the Regulation and Supervision of Microfinance Banks (the "Guidelines"), which took effect on April 1, 2020. The Guidelines will have an influence on the operations of various digital financial services offered by Microfinance Banks in Nigeria. 

Here are the salient features: 

Earlier there were three categories of licences (unit, state and national licences). However, with the current revision of the Guidelines, there are now the following four (4) categories: Tier 1 Unit, Tier 2 Unit, State and National. 

 Individuals, groups of individuals, community development associations, private business companies, and foreign investors may be awarded an MFB licence with a maximum shareholding of 49 percent for individuals and aggregate linked parties. 

As a result, no individual, group of individuals, their proxies, corporate entities, and/or their subsidiaries shall own controlling interest in more than one MFB, except as approved by the CBN. 

A financial holding company that intends to set up any category of MFB as subsidiary shall be required to meet the prescribed capital and other requirements stipulated in the CBN Guidelines for MFB. Such new subsidiary can only be registered with the CAC after obtaining the approval of CBN. 

 Read the complete Guidelines for the regulation and supervision of microfinance banks in 

Nigeria:

 

 Download your copy here: Central Bank of Nigeria https://drive.google.com/file/d/1KTAEQK7hgXzEEGET2IwI241hZI1tJ-mx/view?usp=sharing

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FINCA Microfinance Bank Opens 2nd Branch in Owerri, Imo State

FINCA Microfinance Bank opened a new branch at the Relief Market in Owerri (Imo State) in 2016. This is its 2nd branch. The Bank has started operating with a single branch in December 2014 after its license was approved by the Central Bank of Nigeria on 30th October 2014. Within a quick span of time, it has now opened another branch.

FINCA in Nigeria

Finca is an international organziation focussed on delivering microfinance services to the poor across the globe. In Nigeria, FINCA entered in 2014. After a well-prepared market research, FINCA has chosen Owerri in Imo State as its base and applied for the license to operate. 

Central Bank has granted the license on 30th October 2014. Since then FINCA has produced some amazing results with nearly 9,063 clients with average loan size of $727. The branch operating since 2014 has an outstanding portfolio of $2M. 

FINCA Microfinance Bank (FINCA MfB) began its operations with simple but innovative financial services. It has been offering savings, term deposits and loans to help clients build their micro businesses. 

Nigeria is the 6th country in Africa for FINCA. Besides Nigeria, FINCA's network of microfinance institutions are in Uganda, Malawi, TAnzania, Zambia and Democratic Republic of Congo. FINCA is in Africa since 1992.  

New Branch in Owerri, Imo State

The new branch will be the 2nd branch being started by FINCA MfB in Nigeria. Speculations are that it will double its size of portfolio and client base with this expansion. The MfB is expected to start new recruitment in the new branch in order expand its operations team. 

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Per-Capita Access to Finance is Better in Abuja than in Lagos

Here is a quick bite of a statistical fact: The total number of financial access points in Lagos are 2,248. Compared to this, Abuja Federal Capital Territory (FCT) has only 1,193 access points.

Lagos is better than Abuja - isn't it? But wait, we need to read this statistic by putting it in context with population. With a low population, Abuja FCT has a better access, 8.48 access points per 10,000 people while Lagos has 2.46 per 10,000 people as at the end of 2014.

Stumped? Yes, the fact is that people living in Abuja FCT have better access to financial services than those living in Lagos merely because Abuja FCT isn't as populated as Lagos is. And, therefore, even though Lagos has more number of financial access points, it is not just sufficient for this highly populated city of Nigeria.

What are Access Points?

Access Points are all the possible point of contacts setup by the financial institutions that offer financial services such as savings and loans to the people. They include Commercial Banks, Microfinance Banks, Savings and Credit Cooperatives, Microfinance Institutions etc. The access points (point of contacts by the financial institutions) could be like the bank offices, motorparks (where transactions of some savigns and credit groups happen), post offices, ATMs, mobile POS (Point of Sale devices) etc.

Access Points are an important indicator for measuring performance of financial inclusion because availability and access are critical to the masses.

Per-Capita Access to Finance

In statistics, this is called 'per-capita availability of financial access points'. In a layman's language it can simply put as 'financial institutions in Lagos are not just sufficient to meet the demands of the growing population in Lagos'.

Lets take a deeper look at what's going wrong and why Lagos has low per-capita access to finance.

	Lagos	Abuja FCT
Total Population	9,113,605	1,406,239
Financial Access Points	2,248	1,193
Access Points Per 10,000 People	2.46	8.48

As you could see from the above table, its obvious that Abuja FCT, with a population of 1.4 million has 1,193 access points that translates to 8.48 access points per 10,000 people. Lagos on the other hand, is 8 times more populated than Abuja but with only twice the number of access points than Abuja.

Commercial Banks Per-Capita Access to Finance

Per-capita Access to Finance is more worse when we study the commercial banks in Nigeria. In the past, the total number of financial access points by Commercial Banks in Lagos are 1,504. Compared to this, Abuja Federal Capital Territory (FCT) has only 324 access points. However, with a low population, Abuja FCT has a better access, 2.3 access points per 10,000 people while Lagos has 1.6 per 10,000 people.

'Access to Finance' in other parts of Nigeria

No prize for guessing the condition of other parts of Nigeria when Lagos itself isn't properly equipped to offer enough financial service points. The per-capita access to finance in other parts of Nigeria is not very encouraging. Lets take a look at this graph:

Leading Questions and Conclusion

The situation across the country is best summarized by the above image. Majority of the places in Nigeria have a very poor per-capita access to finance. Infact most of them are less than the median line (less than 1 access point per every 10,000 people).

Also, the entire focus is on Abuja FCT and to a great extent we can include Lagos but what about the rest of Nigeria? 75% of Nigeria still lives in rural areas where access to finance is sparingly lowest.

What responsibilities does the government have towards providing infrastructure to financial institutions? What responsibilities does the private sector have towards making access to finance reach more and more people with a good mix of economies of scale? Should we just focus on making Abuja FCT a better place to live without developing the rest of Nigeria?

What do you think can be done to make this situation better? Share your opinions in the comments below. 

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Microfinance Bank to be established by Lagos Government - Pros and Cons

A Micro-finance Bank (MFB) will be established by Lagos Government very soon. This announcement was made by the Governor Akinwunmi Ambode, Governor of Lagos State on 19 February at 5th edition of the Lagos Corporate Assembly tagged “A-plus meets business” held at the Lagos House Banquet Hall, Alausa.

Now the question that quickly comes to our mind is: OK, Whats so good about it? You'd be interested to learn that there are number of pros and cons of government setting up this bank and therefore this makes an interesting topic to ponder.

Pros of having a Micro-finance Bank by Lagos Government

There are number of benefits of having a microfinance bank owned by a committed government. 

SME and Artisans

• Lagos Government owned and operated micro-finance bank will be a big boon for the Small and Medium Enterprises and artisans. Majority of the entrepreneurs in Lagos are in this segment. The MFB is planning to target this particular segment. If the bank is successful, this has a potential to revive the entire SME sector of Lagos and also has potential to act as role model for other states and other MFBs to follow.

Interest Rate

• Interest rate for loans to these segments is going to be highly affordable. Governor Ambode made an announcement that the plan is to lend at a rate of 3%. Cheaper funds always help in reducing their financing costs and increasing profitability of the potential SMEs. 

Boost in economy and increase employment

• Economy in Lagos is struck with lot of difficulties. The new microfinance bank in Lagos will help in ease of doing business. Ambode's assurance that his administration is committed to maintain a business-friendly environment. 

Cons of having a Micro-finance Bank by Lagos Government

There is a section of our community which has completely a different view about Lagos Government starting a micro-finance bank. The reasons why they do not like this initiative are:

Reinventing the Wheel

There are number of Micro-finance Banks in Nigeria. Majority of them are based in Lagos. The question then will be why do we need yet another micro-finance bank when there are already many existing. Would it not be better for the Government to partner with these MFBs and support their initiatives rather than reinventing the wheel altogether? 

Capital is a Scarce Resource

We all know that the capital is a scarce resource. Reviving an economy would require putting the scarce resource to the optimal use. Given the fact that Micro-finance does not have concrete evidence to show that it is a panacea for the poor, how prudent it is for government to start a microfinance bank? Instead, it could work with other areas of providing some basic amenities like roads and drinking water. 

Infrastructure Challenges 

Financing infrastructure development projects and making sure they are implemented indeed fetches more results than financing SMEs who will struggle with the infrastructure bottlenecks. Lagos is still gripped with deplorable roads, multiplicity of taxes and traffic gridlock. Shouldn't government be focused on addressing these challenges rather than merely creating a new financing of sick SMEs that cannot overcome these challenges to make a profitable living. 

Private - Public Partnership with Foreign Collaborations

Lagos government's plan to start a micro-finance bank completely ignores the potential in leveraging private-public partnerships. More importantly, as a business capital, Lagos has the potential to attract foreign investors with state-of-the-art technologies to boost the micro-finance sector. A large number of Micro-finance Banks still lack training on financial management, treasury management, marketing and Human Resource Management. These are the areas where capacities of local Nigerians needs to be improved through an outsourced expertise from other countries that were successful at it. Government should focus on these strategic areas rather than diverting its energies in an operational task such as starting up a micro-finance bank. 

Government owned Micro-finance leads to High Default Rates

It is a well-known fact that most of the state-owned projects have operational inefficiencies. This is not to undermine the potential of these projects but the clients do not pay properly because they consider Government is always a soft lender. With a low interest rate of 3%, Government is already positioning itself as a Messiah of the poor. But does it know the impact of taking such a position. There will be high default rates, loss of portfolio and low profitability. These are perfect recipes for becoming a sick institution. 

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All about Ebola Virus that every Nigerian should know

As we are writing this, around 1323 people have been affected with the Ebola Virus in West Africa in 2014. Out of this, 730 have been declared dead. These are the scary statistics provided by World Health Organization as on 31 July 2014. 

What is Ebola Virus?

Ebola Virus was first discovered in Democratic Republic of Congo. The genesis of the name Ebola comes from the Ebola River in Democratic Republic of Congo. Ebola Virus causes Ebola Virus Disease (EVD) which is not curable. The virus causes hemorrhagic fever which leads to death. 

What are the Symptions of Ebola Virus?

When a person is affected by Ebola virus, the following symptoms occur:

1. Fever
2. Intense Weakness
3. Muscle Pain
4. Headache
5. Sore throat followed by vomiting
6. Diarrhea
7. Rash
8. Impaired Kidney and liver function 
9. Internal and external bleeding

Who gets Ebola? Who are at the highest risk?

Ebola virus can spread to anyone. Transmission usually happens through direct contact with blood or bodily fluids from an infected person or by contacting a contaminated medical equipment like needles and syringes.   

People who are at highest risk during an outbreak are:

1. Health care workers
2. Family members or anyone close with the infected people
3. Mourners in direct contact with infected bodies during burial ceremonies 
4. Hunters who come in contact with infected animals

Can Ebola Virus Disease be cured?

Ebola is not curable. There is no known treatment so far. However, doctors are suggesting that early treatment can reduce the impact. The treatment can be focused on replenishing fluids, maintaining proper blood pressure, replacing lost blood and treating related infections.  

Why should Microfinance in Nigeria be worried about Ebola?

Every microfinance bank in Nigeria should focus on protecting their clients. It might be quite useful to pass the message through notice board in the bank or posters at client places. Most of the Microfinance clients are vulnerable to this as they are in the market places and interact with many number of people. If you notice any such cases, please use this website as a platform to report the case and we can collectively work towards a reasonable solution. 

Spread this message to stop Ebola from spreading. 

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Four barriers to financial inclusion - How to overcome them according to CBN Governor

Long distance access points, Cumbersome eligibility requirements, Low financial literacy, and High costs of financial services - these are the four barriers for financial inclusion according to Sanusi Lamido Sanusi, Governor of Central Bank of Nigeira.

These are also the same four barriers that propelled the need for implementation of National Financial Inclusion Strategy 2020. For those interested to learn more about NFIS 2020, click here: National Financial Inclusion Strategy 2020.

As of 2013, Nigeria is at the cross-roads where 46.3 percent of population comprising of about 64.8 million Nigerians are excluded from financial and banking sector in the country. This is the segment of people without an access to formal financial services.

With almost half of Nigerians still lacking financial access, it is difficult to dream of a nation that is financially inclusive by the year 2020. The NFIS 2020 is a bold move by CBN where the financial inclusion is aimed at 80% by the year 2020. Do you think it is achievable? We have an online poll running on this issue and we would like you to participate here: Reducing financial exclusion rate to 20% by 2020. Is it achievable?

Speaking at the flag-off implementation of NFIS 2020 in Maidugiri - capital of Borno State, Governor Sanusi Lamido Sanusi explained that the four barriers can be overcome if NFIS 2020 is successfully implemented. Sanusi said, "the key initiatives in the Strategy include a tiered approach to KYC agent banking, a cash-less policy, a financial literary framework, consumer protection, and the implementation of credit enhancement schemes and programmes."

He also added that Micro finance banks will be one of the important stakeholders that need to commit themselves for full implementation of the strategy.

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Microfinance banks operating unauthorized branches shall be punished by CBN

The Director of Other Financial Institutions Supervision Department, Central Bank of Nigeria, Mr O A Fabamwo, has issued a Circular (numbered OFI/DIR/CIR/GEN/01/09 dated 17 December 2012) in the last month of the 2012 giving a clear reminder to all the MFBs to not to indulge in opening unauthorized branches.

What are Unauthorized Branches?

The Central Bank of Nigeria (CBN), in the said Circular went on to clarify what are unauthorized branches. Here is an extract from the Circular that explains how CBN considers unauthorized branches:

For the avoidance of doubt, all ‘customer interaction centres’, ‘meeting-points’ and ‘customer service centres’, or similar outlets, once located outside the registered business premises of a Unit MFB shall be regarded as unauthorized/unapproved branches/cash centres. All previous approvals for such outlets for Unit MFBs have become null and void from the date of approval of the Revised Policy Framework by the Board of Directors of the CBN.

If you are the Director or a Shareholder of a Microfinance Bank, its a high-alert time to check if your management has created any additional outlets to carry out operations.

Is it wrong for MFBs to have an Additional Outlet?

According to the Revised Microfinance Policy Framework, MFBs that are licensed to operate as a Unit MFB are not authorized to open any additional branches, even in the name of an outlet. Similarly, MFBs that are licensed to operate as State MFB are not authorized to open any additional branches beyond what they have been approved for and paid for. Same applies for National MFB.

It is a simple message that CBN wants to pass on - Do your business within the limits of what you are authorized to do.

How Much is the Penalty for Non-Compliance?

According to Section 13.1(b)  of the Revised Guidelines, the penalty for operating a branch/cash center without a prior approval of CBN is as follows:

Cash Penalty:

• N 250,000 per branch for a Unit MFB
• N 500,000 per branch for a State MFB
• N 1,000,000 per branch for a National MFB

In addition,

• Such unapproved branched/cash centres shall be closed within thirty (30) days.
• Failure to close an unapproved branch or cash centre, shall attract a fine of N5,000 for each day of default, irrespective of the category of MFB. 

Moreover,

• Failure to comply with any directive issued by the CBN, as stipulated in Section 19(i) of the Revised Guidelines for MFBs, is a ground for revocation of licence.

Now that is indeed a serious penalty that no MFB would wish to be part of. Is your MFB fully compliant with the latest CBN guidelines? You better check it once again.

Is the CBN Really Serious about it?

Oh Yes..! In the recent news, CBN is all set to launch a Surveillance Scheme to monitor all such activities by MFBs. The Scheme is ready to be operational anytime in the coming days. Fabamwo's Circular has set a deadline of 31 December 2012 for MFBs to comply with this guideline. And now that the deadline is over, its time for CBN to come into action.

What do you think about this initiative by CBN? Is it in the good interest of the nation that is aiming for financial inclusion by 2020? Or do you think that the regulations need to be more MFB-friendly? We would like to hear your comments.

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Revised Regulatory and Supervisory Guidelines for Microfinance Banks (MFBs) in Nigeria

Central Bank of Nigeria has revised the Regulatory and Supervisory Guidelines for Microfinance Banks in Nigeria. The draft document dated December 2012 is provided below for public reference:

Download your copy

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Nigerian Microfinance Banks Must Read Section 19 of Revised Guidelines by CBN

Section 19 of Revised Regulatory Guidelines by CBN - What is it about? And, Why should Microfinance Banks be worried about it? What are the typical examples where MFBs are subject to Section 19? Are they punishable offenses? If so, What is the penalty?

Hold your breathe. We'll address each of these questions now.

What is Section 19?

Firstly, let us be aware that the Central Bank of Nigeria (CBN) has launched "Revised Regulatory and Supervisory Guidelines for Microfinance Banks (MFBs) in Nigeria" in the year 2012. Every MFB is supposed to have a copy of this and read every line properly. Grab your copy here if you do not have by clicking here: Revised Regulatory and Supervisory Guidelines by CBN for MFBs in Nigeria - December 2012.

It is under this guidelines, Section 19 has been written with the title "Conditions for Revocation of Licenses". Let us quickly get what does Section 19 of Revised Guidelines stipulate. Here is the verbatim:

Section 19. Conditions for Revocation of Licence

The grounds for revoking a licence granted to an MFB may be any or all of the following:
a. Submission of false information/data during and/or after the processing of the application for licence; 
b. The use of proxies or disguised names to obtain a licence to operate as an MFB; 
c. Engaging in functions/activities outside the permissible scope of its licence as specified in Section 2.2 of these guidelines; 
d. Persistent failure to comply with request for information/data in the form required/specified by the CBN; 
e. Engaging in activities prejudicial to the Nigerian economy; 
f. Failure to redeem matured obligations to customers; 
g. Failure to render statutory monthly returns for a continuous period of 6 months or for a cumulative period of 6 months in a financial year.
h. Unauthorized shop closure; 
i. Failure to comply with any directive issued by the CBN; 
j. Engaging in prohibited activities as listed in these Guidelines; 
k. Technical insolvency i.e. where an MFB’s assets are insufficient to cover its liabilities.
l. Such other conditions applicable to banks and other financial institutions which constitute a ground for revocation  of licence  under  the  Banks and other Financial Institutions Act (BOFIA) 1991(as amended); and 
m. Any other act(s) which in the opinion of  the  CBN constitute(s) a violation or a serious default.

As one reads this, its clear that anything against the CBN's guidelines is considered as a case for revocation. Section 19 gives a full-fledged and all-encompassing powers to CBN for revocation of licences of MFBs.

Why should MFBs worry about Section 19? 

Section 19 has certain clauses that can bring down a Microfinance Bank to its knees if it does not adhere to the regulatory norms that are in the rule book i.e in the Revised Regulatory and Supervisory Guidelines.

What are the typical examples where MFBs are subject to Section 19?

A typical example would be that of running additional branches or units or cash collection centers that are beyond what a MFB is supposed/licensed to operate. 

Let us say a MFB has paid N.250,000 for single branch license. As it has a single branch license, it shall be known as Unit MFB. As a Unit MFB, if they have opened outlets in whatever name it could be outside the registered premises, then they are actually violating CBN guidelines and are punishable under Section 19 (a). 

What are the Consequences?

The most undesired consequence is shutting down the microfinance bank if any MFB is found violating CBN guidelines under any of the conditions specified in Section 19.

Well, if you are representing a MFB, then better beware of the entire Regulatory Guidelines before CBN launches its assault.

And, if you are the user of a MFB, know your rights and responsibilities. You too need to read the guidelines.

We would like to hear from one and all about how they are coping with these new guidelines.

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