Last week the Central Bank of Nigeria released an exposure draft guideline for the regulation and supervision of the microfinance banks (MfBs) in Nigeria. It is coming at a time when the industry is rife with anxiety as bank owners approach their part recapitalization deadline of April 2020. Recall that last year the CBN had increased the capital base of microfinance banks with a view to making it more liquid and strong enough to carry out its statutory role in eradicating poverty in Nigeria. The new draft is also coming at the heels of some investor apathy towards perceived inadequate capital and low returns on investment. The new guideline seems to have addressed a lot of issues bothering stakeholders in the industry going by the level of acceptance or reaction from industry players.
In this episode, we shall consider some of the area of divergence between the old and new guideline. They include the following.
- Capital Structure: While the old guideline had three categories of MfBs, the new guideline categorized MfBs into Tier-1 Unit, Tier-2 Unit, State and National.
- Capital Base: This has been reviewed upward raising that of Unit MFBs from N20 million to N50 million for Tier 2 and N200 million for Tier 1 MFBs. The two categories are expected to meet N35 million and N100 million capital base by the first day of April 2020. In the same vein, State and National banks are required to increase from N100m and N1billion to N1.0billion and N5billion respectively. However, the State is expected to meet N500m while the National is expected to meet N3.5billion by April 2020. They all have up to 2021 to meet the final recapitalization.
- Number of branches: Unit MfBs were only allowed to open one branch within their local government of operation in the previous guideline but the new guideline provides that Tier 1 Unit MFBs, “shall operate in the banked and high-density areas, and is allowed to open not more than four branches outside the head office within five contiguous local governments areas, subject to the approval of the CBN. Along the same line, ”Tier-2 Unit MFB with rural authorisation shall operate only in the rural, unbanked or underbanked areas, and are allowed to open one branch outside the head office within the same local government area, subject to the approval of the CBN.
- Permissible Business: In the previous guideline Commercial Papers popularly called CPs as a product of the bank was not permissible. This was the exclusive preserve of the Commercial banks and finance houses. In the new guideline it has become permissible. MfBs shall now engage in the issuance of domestic Commercial Papers subject to CBN approval. Commercial papers are short term debt instruments issued by institutions and sold to individuals, companies etc at a discount with the aim of raising fund to cover working capital gaps (not fixed asset). They typically have a tenor less than 270days or 9 months and their interest rate reflects prevailing market condition. Another business is that of Agency banking. MfBs shall now appoint agents to provide financial services on its behalf in line with the CBN Agent Banking Guidelines, within the geographic coverage of its license.
See you next week.