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Monday, January 28, 2013

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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