CBN cautions microfinance banks against forex transactions and wholesale banking

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The Central Bank of Nigeria has advised microfinance institutions against engaging in certain prohibited activities, including wholesale banking and foreign exchange transactions.

This was disclosed in a circular titled “Cessation of non-permissible activities by microfinance banks,” signed by Ibrahim Tukur on behalf of CBN’s Financial Policy and Regulation Department.

CBN said, “The Central Bank of Nigeria has observed the activities of some microfinance banks that have gone beyond the remit of their operating licence by engaging in non-permissible activities, especially wholesale backing, foreign exchange transactions and others.

“Given the comparatively low capitalisation of MfBs, dealing in wholesale and/or foreign exchange transactions are a significant risk with dire consequences for financial system stability. Therefore,  it has become imperative to remind all MfBs to strictly comply with the extant Revised Regulatory and Supervisory Guidelines for Microfinance Banks in Nigeria 2012.

“For the avoidance of doubt and consistent with the permissible activities of specialised micro-institutions: MfBs are strictly prohibited from foreign exchange transactions.

“MfBs are to primarily focus on providing financial services to retail and/or micro-clients with a limitation of N500,000 per transaction for Tier 2 Unit MFBs and N1m for other categories. MfBs shall constitute a minimum of 80 per cent of the total loans portfolio for MBs.

“The CBN would continue to monitor developments in the MfB sector and apply stringent regulatory sanctions for violations of extant regulations, including revoking licenses of non-compliant MFBs.”

In case you missed it

Nairametrics, a few days ago disclosed that some Microfinance Banks (MFBs) now give loans to United Kingdom-bound Nigerians, who use such funds as their ‘Proof of Fund’ (POF) to acquire visas.

According to provisional data from the CBN, MFBs collectively recorded a total loan to the private sector of N761.4 trillion as of June 2021. This follows a similar contraction in February and the second in about 10 months.

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