Indications have emerged that the Central Bank of Nigeria may revoke the operating licences of some microfinance banks in the country early next year, ADEMOLA ALAWIYE reports. With the financial sector smarting from the 2010 withdrawal of operating licences of 103 microfinance banks, indications have again emerged that more MFBs may soon lose their licences as a result of another impending cleaning exercise by the Central Bank of Nigeria.
The CBN, which gave the hint on Friday, said the non-compliance with the Revised Microfinance Policy Framework still remained a possible ground for operators to lose licences early in the year 2013, in view of the imminence of the compliance deadline of December 31, 2012, it gave to MFBs.
The regulator, in a circular, signed by the Director, Other Financial Institutions Supervision Department, CBN, Mr. Olufemi Fabanwo, on Friday reminded the MFBs that failure to comply with the Revised Microfinance Policy Framework was a ground for revocation.
The CBN said in the circular, “This is a reminder to all directors and shareholders of all microfinance banks on the deadline of December 31, 2012, for compliance with the Revised Microfinance Policy Framework, particularly in respect of the capital requirements for each category of MFBs and existing branches/cash centres.”
The revised policy framework provides for three categories of microfinance banks and stipulated minimum capital requirements for each category.
Category one is a Unit Microfinance Bank, which is authorised to operate in one location and is prohibited from having branches/cash centres. Category two, according to CBN, is a State Microfinance Bank, which is authorised to operate in one state or the Federal Capital Territory: it is allowed to open branches within the same state or the FCT, subject to prior written approval by the CBN for each new branch.
Category three consists of a National Microfinance Bank, which is authorised to operate in more than one state, including the FCT, and is allowed to open branches in all states of the federation and the FCT, but subject to prior written approval by the CBN.
The CBN gave microfinance banks three options to comply with the revised policy guideline. One option is to raise fresh capital to bring the capital base to the stipulated minimum of N100m shareholders’ fund unimpaired by losses, to become a State Microfinance Bank under the revised framework.
The second option is to obtain regulatory approval of the CBN to close all existing branches and cash centres and remain a Unit Microfinance Bank with a minimum capital requirement of N20m shareholders funds unimpaired by losses, while the third option is to embark on mergers and acquisition, such that the consolidated capital base of the combined institutions meets the stipulated capital requirement of a state or national microfinance bank.
The circular read further, “As you are well aware, all MFBs that have elected to remain unit MFBs (MFBs authorised to operate in one location and prohibited from having branches/cash centres) are required to close any existing branches/cash centres, subject to prior approval of the CBN in writing and adequate notification to existing customers, who should be advised to migrate their accounts to the MFB’s Head Office, while dissenting customers should be settled.”
However, our correspondent gathered that many of the microfinance banks, who had indicated interest to remain as unit MFBs, had yet to close their branches with less than one week to the expiration of the deadline.
Fabanwo pointed out that appeal for a waiver or reduction of penalty or extension of compliance deadline would not be entertained.
He added, “It is also pertinent to remind you that the penalty for operating a branch/cash centre without prior approval of the CBN as stipulated in Section 13.1(b) of the Revised Guidelines for MFBs is N250, 000 per branch for a unit MFB; N500,000 per branch for a State MFB; and N1m per branch for a National MFB.
“In addition, such unapproved branches/cash centres shall be closed within 30 days. Failure to close an unapproved branch or cash centre shall attract a fine of N5,000 for each day of default, irrespective of the category of MFB. Moreover, failure to comply with any directive issued by the CBN, as stipulated in Section 19(i) of the Revised Guidelines for MFBs, is a ground for revocation of licence.”
The CBN said that for the avoidance of doubt, all customer interaction centres and customer service centres or similar outlets, once located outside the registered business premises of a unit MFB would be regarded as unauthorised and unapproved branches or cash centres.
“All previous approvals for such outlets for unit MFBs have become null and void from the date of approval of the Revised Policy Framework by the Board of Directors of the CBN,” it added.
The CBN, in the Revised Microfinance Policy Framework, gave all microfinance banks till December 31, 2012, to comply with the framework.
The CBN, in 2010, revoked the operational licences of 224 MFBs as a result of what the regulator termed ‘below performance’ measuring yardstick.
The CBN had said the microfinance banks were not technically sound, hence the revocation. The regulatory bank noted that the Nigeria Deposit Insurance Corporation would immediately step in to ensure that depositors, who were insured, were paid what was obtainable within the ambit of the law.
However, the CBN later rescinded its decision and granted provisional approval for new licences to 121 MFBs that had been confirmed to have made fresh capital injection, subject to the fulfillment of some specific requirements within a stipulated timeline of three months.
The requirements for the grant of new operating licences to the 121 MFBs included the capitalistion of prior deposits for shares, making available the new capital injection to bring the shareholders’ funds, unimpaired by losses, to the prescribed minimum of N20m; good corporate governance; sound risk management system; and strong internal controls to forestall avoidable losses. Other criteria set out were closure of unapproved branches, cash centres and ‘customers meeting points’; and adoption of true microfinance business model, among others.
