CBN threatens to revoke licences of microfinance banks engaging in FX transactions

The Central Bank of Nigeria (CBN) has threatened to revoke licences of microfinance banks dealing in foreign exchange (FX) transactions.

The apex bank issued the warning in a circular signed by Ibrahim Tukur, CBN’s financial and regulation department, on Thursday.

CBN said it has observed that some microfinance banks (MFBs) have gone beyond the remit of their operating licenses by engaging in non-permissible activities especially wholesale banking, foreign exchange transactions and others.

It noted that the such activities poses danger to the financial system, adding that it is a contravention of the Revised Regulatory and Supervisory Guidelines for Microfinance Banks in Nigeria 2012.

“Given the comparatively low capitalization of MFBs, dealing in wholesale and/or foreign exchange transactions are a significant risk with dire consequences for financial system stability,” the circular reads.

“It has therefore become imperative to remind MFBs to strictly comply with the extant Revised Regulatory and Supervisory Guidelines for Microfinance Banks in Nigeria 2012 (the Guidelines).”

The apex bank said MFBs are to primarily focus on providing financial services to retail and/or micro- clients while they are “strictly prohibited from foreign exchange transactions”.

It said micro credit and retail transactions carried out by MFBs are limited to N500,000 per transaction for Tier 2 Unit MFBs and N1,000,000 for other categories.

CBN added that micro credit facilities shall constitute a minimum of 80 per cent of total loans portfolio for MFBs.

“The CBN will continue to monitor developments in the MFB sector and apply severe regulatory sanctions for breaches of extant regulations, including revoking the license of non-compliant MFBs (in line with Section 19 of the Guidelines).”

This development comes after CBN announced that it would discontinue sales of FX to Bureaux De Change operators (BDCs).

The apex bank accused BDC operators of turning away from their objectives, saying they have become “agents that facilitate graft and corruption in the country”.

CBN had said it will henceforth channel weekly allocations of dollar sales to commercial banks to meet legitimate FX demands, while mandating banks to sell forex to every customer.