CBN Announces New Capital Base for Microfinance Banks

By Dipo Olowookere

The Central Bank of Nigeria (CBN) has announced N5 billion as the minimum capital requirement for national microfinance bank in the country.

In a circular released and signed by the CBN Director of Financial Policy and Regulation Department, Mr Kevin Amugo, it was disclosed that the capital base for unit microfinance bank is N200 million, while for state microfinance bank is N1 billion.

According to the circular, “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 01, 2020.”

The CBN explained that these new requirements became imperative as a result of the role of microfinance banks in economic growth and development.

Quoting the Microfinance Policy, Regulatory and Supervisory Framework introduced in December 2005 and revised in 2011, the apex bank explained that 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.

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

“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,” the bankers’ bank said.

The circular said to meet the new 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.

Institutions that meet the capital requirements as well as demonstrate the existence of strong corporate governance in their operations would be allowed to open account at the CBN office within their state of operation. Such institutions would also be channels for micro funding activities of the CBN and the Development Bank of Nigeria.