The Central Bank of Nigeria (CBN) in a circular released this week reiterated its position banning Microfinance Banks (MFBs) from foreign exchange (FX) transactions.
The CBN said it has observed that the activities of some Microfinance Banks (MFBs) 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,” the CBN said in the August 19 circular, signed by Ibrahim Tukur, of the Financial Policy and Regulation Department.
“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 CBN further listed the permissible and non-permissible activities of specialized micro-institutions as:
- MFBs are strictly prohibited from foreign exchange transactions.
- MFBs are to primarily focus on providing financial services to retail and/or micro-clients.
- Micro credit and retail transactions carried out by MFBs are limited to N500,000 per transaction for Tier 2 Unit MFBs and N1,000,000 for other categories.
- Micro credit facilities shall constitute a minimum of 80 percent of total loans portfolio for MFBs.
“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,” the CBN said.