By: Theresa Igata

The Central Bank of Nigeria, CBN, has increased the capital requirements for microfinance banks in the country in a bid to strengthen the sub-sector and reposition it towards improved performance.

The CBN gave the announcement of the upward review of the minimum capital requirement in a circular dated October 22, 2018 to all microfinance banks in the country and signed by the Director, Finance Policy and regulatory Department of the CBN, Kevin Amugo.

According to the statement, the minimum capital requirement for unit and state microfinance banks was raised each to N200m and N1bn, respectively while that of national microfinance banks increased to N5bn from N2bn.

Amugo, said the apex bank reviewed the minimum capital requirement 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 the country.

According to him, “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.”

He stated that given the role of microfinance banks in economic growth and development, the Microfinance Policy, Regulatory and Supervisory Framework was introduced on December 15, 2005 and revised in 2011 and 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.

According to him, the microfinance banking sub-sector, in pursuit of the above objectives, has been contending with such challenges as inadequate capital base, weak corporate governance, ineffective risk management practices, dearth of requisite capacity and mission drift.

He said, “The CBN has reviewed the state of health of the sub-sector and is of the view that microfinance banks, as presently constituted, would be unable to meet the critical targets set out in the Microfinance Policy, hence the need for specific reforms to strengthen the sub-sector and reposition microfinance banks towards improved performance”, however, “institutions that meet the capital requirements as well as demonstrate the existence of strong corporate governance in their operations will be allowed to open account at the CBN office within their state of operation and such institutions would also be channels for micro funding activities of the CBN and the Development Bank of Nigeria”.

The new minimum capital requirement takes immediate effect for new applications, while existing microfinance banks shall be required to fully comply with effect from April 1, 2020.