CBN bans Microfinance banks from forex dealings

The Central Bank of Nigeria (CBN) has warned microfinance banks from further dealing in foreign exchange transactions.

In a circular dated August 19, 2021, by the director, Financial Policy and Regulation Department of CBN, Ibrahim S. Tukur and titled Cessation of Non-Permissible Activities By Microfinance Banks, the apex bank warned that it would punish MFBs that refused to heed the warning.

The circular expressed that “CBN has observed the activities of some Microfinance Banks (MFBs) that have gone beyond the remit of their operating licenses by engaging in non-permissible activities, especially wholesale banking, foreign exchange transactions and others.

“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.”

It then reminded all MFBs to strictly comply with the extant Revised Regulatory and Supervisory Guidelines for Microfinance Banks in Nigeria 2012 (the Guidelines).

“For the avoidance of doubt and consistent with the permissible activities of specialized 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.

“Microcredit and retail transactions carried out by MFBs are limited to N500,000 per transaction for Tier 2 Unit MFBs and 1,000,000 for other categories.

“Microcredit facilities shall constitute a minimum of 80 per cent of total loans portfolio for MFBs.”
The circular explained that 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).

It would be recalled that at its last monetary policy committee (MPC) meeting, CBN stopped the sales of foreign exchange to bureau de change.

Despite the action, however, the naira has continued to depreciate against international currencies.

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