…set to apply severe sanctions for breaches
By Theresa Moses
The Central Bank of Nigeria (CBN) has banned microfinance banks (MFBs) operating in the country from carrying out foreign exchange (FX) transactions.
In a circular titled Cessation of Non-Permissible Activities by Microfinance Banks dated August 19, 2021, and signed by Mr Ibrahim Tukur, for the financial policy and regulation department, sent to the lenders and sighted by Sunday Sun, the apex bank noted that it observed that some MFBs have gone beyond the remit of their operating licenses.
The CBN accused the small banks of engaging in “non-permissible” activities including wholesale banking, FX transactions among others while pointing out that 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.
As a result, the apex bank said it has become important for the lenders to comply with the extant Revised Regulatory and Supervisory Guidelines for Microfinance Banks in Nigeria instituted in 2012.
It then directed MFBs henceforth to stick to “permissible activities” which include primarily focusing on providing financial services to retail and micro- clients.
“MFBs are strictly prohibited from foreign exchange transactions. Also microcredit and retail transactions carried out by these institutions must not exceed N500,000 per transaction for Tier-2 unit banks while N1,000,000 are for other categories.
Microcredit facilities shall constitute a minimum of 80 per cent of total loans for microfinance banks”, the statement stated.
The CBN thereafter warned that severe regulatory sanctions will be handed down to banks who breach these regulations, a punishment which include the revoking of their license as stipulated in Section 19 of the Guidelines.
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