Tuesday , October 26 2021
CBN Pegs Microfinance Banks Loan Per Transaction at N1 Million

CBN Pegs Microfinance Banks Loan Per Transaction at N1 Million



…Warns microfinance banks against forex transactions

The Central Bank of Nigeria (CBN) has pegged maximum loan limit for Microfinance Banks (MfBs) at N1 million per transaction.

The apex bank gave this directive in a circular to all MfBs titled: Cessation of non-permissible activities by MfBs”.

The MfB operators were also strictly prohibited from engaging in foreign exchange transactions.

The CBN further directed the MfBs to primarily focus on providing financial services to retail and/or micro clients, microcredit and retail transactions not exceeding N500,000 per transaction for tier 2 unit MFBs and N1 million for other categories.

Also, micro credit facilities shall constitute a minimum of 80 per cent of total loans portfolio for MFBs.

The apex bank also warned MfBs to desist from offering non-permissible activities, especially foreign exchange and wholesale banking transactions.

The regulator noted that it observed that some MFBs are engaging in non-permissible activities which pose risk to the financial system.

The circular, which was signed by the Director of Financial Policy and Regulation Department, Ibrahim Tukur, stated: “The Central Bank of Nigeria (CBN) has observed the activities of some MFBs that have gone beyond the remit of their operating licenses by engaging in non-permissible activities, especially wholesale banking, foreign exchange transactions and others.

“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 thus, therefore, become imperative to remind all MFBs to strictly comply with the extant Revised Regulatory and Supervisory Guidelines for MFBs in Nigeria 2012 (the guidelines).

Furthermore, the apex bank CBN has cautioned microfinance banks in the country to stop engaging in foreign exchange transactions and other unauthorised dealings.

The apex bank stated this on Friday in a circular titled ‘Cessation of Non-Permissible Activities by Microfinance Banks’ issued by Ibrahim Tukur from the CBN’s Financial Policy and Regulation Department.

“The Central Bank of Nigeria (CBN) has observed the activities of some Microfinance Banks (MFBs) that have gone beyond the remit of their operating licenses by engaging in non-permissible activities especially wholesale banking, foreign exchange transactions and others,” the circular read.

Click Here To Read: NDIC Commences Depositors Verification for 22 Microfinance Banks With Revoked Licences

“Given the comparatively low capitalisation 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).”

Based on the remit of microfinance banks, they are strictly prohibited from foreign exchange transactions, according to the CBN.

Consequently, microfinance banks that deal in forex transactions risk sanctions.

“The CBN will continue to monitor developments in the MFB sector and apply severe regulatory sanctions for breaches of extant regulations, including revoking the license of non-compliant MFBs (in line with Section 19 of the Guidelines),” the apex bank said.

Microfinance banks are meant to focus primarily on providing financial services to retail and micro-clients.

 


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