CBN raises minimum capital for Micro-Finance Banks

* Unit MfB = N200m, State MFB = N1bn, National MFB =N5bn

After months of speculations that it was about to make the move,
the Central Bank of Nigeria (CBN) yesterday announced an increase
in the minimum capital requirement for Micro Finance Banks (MFBs)
in the country.

In a circular to MFBs entitled, “Review of minimum capital
requirement for Microfinance Banks in Nigeria” posted on its
website, which was signed by the Director, Financial Policy and
Regulation Department, Mr. Kevin Amugo, the apex bank said it made
the move in order to strengthen the MFB sub sector for improved
performance.

MFBs with national licence operate in all the states of the
Federation while MFBs with state licence operate within a state and
are allowed to have cash centres within the state.
However, the bulk of the MFBs are Unit MFBs which cannot have cash
centres besides the main office.

The minimum paid up capital for Unit MFBs has been hiked to N200
million, while State MFBs and National MFBs will require minimum
paid up capital of N1 billion and N5 billion respectively, to
operate in the country.

Previously, a Unit license MFB requires N20 million minimum paid
up capital to operate; State MFBs license requires N100 million
minimum paid up capital, while a National MFB needs N2 billion as
minimum paid up capital to operate.

Analysts note that more than 80 per cent of the over 700
licensed MFBs in the country are Unit MFBs.

The CBN, however, stated that while the new minimum capital
requirement takes immediate effect for new applications, existing
MFBs are required to fully comply with effect from April 1,
2020.

The regulator also stated: “To meet these requirements, existing
microfinance banks are expected to explore the possibility of
mergers and acquisitions and/or direct injection of funds,” adding
that the Revised Regulatory and Supervisory Guidelines for MFBs,
Code of Corporate Governance for the sub sector and sector¬
specific prudential guidelines for MFBs, “would be issued in due
course.”

In addition, the CBN stated that MFBs that meet the new 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.

It disclosed: “Such institutions would also be channels for
micro funding activities of the CBN and the Development Bank of
Nigeria.”

According to the CBN, the MFB sub sector has been contending
with challenges such as, “inadequate capital base, weak corporate
governance, ineffective risk management practices, dearth of
requisite capacity and mission drift.”

Just last month, the CBN issued licence revocation notice for
154 MFBs, six Primary Mortgage Banks (PMBs) and 22 Finance
Companies (FCs).

The list of the affected MFBs, released by the banking watchdog,
showed that 62 have closed shop, 74 were insolvent, 12 were
terminally distressed, while six had gone into voluntary
liquidation.

Meanwhile, the National Association of Micro Finance Banks
yesterday said that nine out of the 34 micro finance banks in Niger
State have lost their operational banking licences.

Mr. Sado Daniel, North Central Secretary of the association,
made the remark in Bida while inaugurating a micro-finance bank
established by the Federal Polytechnic, Bida.

“These micro-finance banks lost their licences because they fell
short during the regulation exercise carried out by the Central
Bank of Nigeria (CBN),” he said.

Similarly, Hajia Hajara Mohammed, a representative of the CBN in
Minna, said that insider abuse was another huge factor that
contributed to the failure of micro-finance banks across the
country.

Earlier, Dr. Abubakar Dzukogi, the Rector of the polytechnic,
said that the micro-finance bank was established with a capital
base of N20 million, adding that it would be increased to N50
million by the year 2019.