The Central Bank of Nigeria (CBN) on Tuesday raised the minimum capital base of microfinance banks (MFBs) in the country, setting April 2020 deadline for all operators to comply with the new recapitalization requirements.
The apex bank, in a circular issued by its Director, Financial Policy and Regulation Department, Kevin Amugo, increased the minimum capital base of National MFBs to N5 billion, while state MFB capital base was increased to N1 billion and Unit MFBs to N200 million.
Currently, the minimum capital base for national MFBs was N2 billion while state MFBs were then required to have N100 million. Unit MFBs had N20 million minimum capital requirement.
The regulatory financial institution stated the regulatory policy measure became imperative in view of the sector’s current challenges that range from inadequate capital base, weak corporate governance, ineffective risk management practices and to dearth of requisite capacity and mission drift, amongst others.
The circular reads: “Given the role of microfinance banks in economic growth and development, the CBN introduced the Microfinance Policy, Regulatory and Supervisory Framework on December 15, 2005 (revised in 201 l).
“The key focus of the policy was among others, to increase financial inclusion rate in the country: improve access to financial services for the active rural poor; and pursue poverty eradication”, the CBN stated.
The apex bank maintained that having reviewed the state of health of the sub-sector, it was discovered that the MFBs as constituted now, would be unable to meet the critical targets set out in the microfinance policy, thereby necessitating the need for specific reforms to strengthen the sub-sector and reposition it for improved performance.
It clarified further: “Consequently, the CBN, in exercise of the powers conferred on it by the Banks and Other Financial Institutions Act and in furtherance of its mandate to promote a sound financial system in Nigeria, hereby increases the minimum capital requirement of microfinance banks.
“To meet these requirements, existing microfinance banks are expected to explore the possibility of mergers and acquisitions and/or direct injection of funds.
“The Revised Regulatory and Supervisory Guidelines for Microfinance Banks, Code of Corporate Governance for Microfinance Banks and sector specific Prudential Guidelines for Microfinance Banks would be issued in due course.
“Institutions that meet the 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. Such institutions would also be channels for micro funding activities at the CBN and the Development Bank of Nigeria,” the apex bank added.