The Central Bank of Nigeria (CBN) has increased the capital requirements for microfinance banks in the country in a bid to tackle the challenges of inadequate capital base, weak corporate governance, ineffective risk management practices, dearth of requisite capacity to deal with the customer base and the lack of policy direction proliferating the sub-sector. The CBN announced the upward review of the minimum capital requirement in a circular dated October 22, 2018. The minimum capital requirement for unit and state microfinance banks was raised by 900 per cent each to N200m and N1bn, respectively from N20m and N100m, while that of national microfinance banks was increased by 150 per cent to N5bn from N2bn. The new minimum capital requirement takes immediate effect for new applications, while existing microfinance banks are required to fully comply with effect from April 1, 2020.
The Microfinance Policy Framework which underpins the operation and framework of Microfinance Banks in Nigeria was released by the CBN in 2005. It is aimed at enhancing the access of microentrepreneurs and low income households to financial services required to expand and modernize their operations in order to contribute to rapid economic growth. The rationale was that no inclusive growth can be achieved without improving access of this segment of the economic strata to factors of production, especially financial services. The achievement of the above objectives have however, been derailed by the challenges listed in the first paragraph. The CBN, after a review of the sub-sector concluded that the current structure of microfinance banks, as constituted, was a hindrance to the critical targets set out in the Microfinance Policy, hence the review of the capitalization requirement.
To meet these requirements, existing Microfinance Banks are expected to explore the possibility of mergers and acquisitions. In addition, as an incentive, institutions that meet the capitalization requirements and demonstrate effective corporate governance in their operations will be allowed to open an account at the CBN office and will be channels for the micro funding activities of the CBN and the Development Bank of Nigeria.
The CBN also indicated in the circular that a Code of Corporate Governance and sector specific Prudential Guidelines for Microfinance Banks will be released in due course.
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