On October 22, 2018, the Central Bank of Nigeria (CBN) issued a circular pursuant to its Microfinance Policy, Regulatory and Supervisory Framework (April 2011). The Circular which was intended to give effect to the said Policy, essentially reviewed the Minimum Capital Requirement (MCR) of Micro Finance Banks (MFBs). This review aimed to improve funding capacity, as a critical step to repositioning MFBs for improved performance, as well as increasing the banks' capacity to meet targets set out in the 2011 Policy. Sequel to the October 2018 Circular, the CBN has now issued a new circular dated March 7, 2019 ('the 2019 Circular') further reviewing the MCR of MFBs, and in the same vein recategorizing the MFBs. The 2019 Circular in its recategorization, introduces a tier system for unit MFBs, sets a new MCR for each tier whilst retaining the capital requirements for state and national MFBs.
To ensure the provision of relevant financial services to the unbanked and underbanked, the CBN has created a 2-tier system in categorizing unit MFBs based on the area in which the bank operates. Tier 1 MFBs, which operate in urban, high density areas are required to possess a minimum capital of Two Hundred Million Naira (N200,000,000.00) while Tier 2 MFBs, which operate only in rural, unbanked, and underbanked areas are required to have a minimum capital of Fifty Million Naira (N50,000,000.00).
To facilitate compliance, the 2019 Circular has extended the time within which MFBs are required to fulfil these capital requirements from 2020 (as in the October 2018 Circular) to 2021, with an expectation that this is observed in the following manner:
|Tier I Unit
Minimum Capital Requirement by April 2020: N100 Million
Minimum Capital Requirement by April 2021: N200 Million
|Tier II Unit
Minimum Capital Requirement by April 2020: N35 Million
Minimum Capital Requirement by April 2021: N50 Million
Minimum Capital Requirement by April 2020: N500 Million
Minimum Capital Requirement by April 2021: N1 Billion
Minimum Capital Requirement by April 2020: N3.5 Billion
Minimum Capital Requirement by April 2021: N5 Billion
The notable difference(s) between the 2018 and 2019 Circulars, is the re-classification of unit MFBs into Tier I and Tier II and the extension of time within which MFBs may meet these capital requirements.
As an incentive for MFBs to meet the capital requirement, the 2018 Circular provides that institutions which meet the MCR and demonstrate strong corporate governance in their operations will be permitted to open accounts with the CBN and be channels for the CBN's micro funding activities. The 2019 Circular is however silent in this regard and it is uncertain if it is the intention of the CBN to still give effect to this provision, especially since the 2019 Circular has been given a superseding effect over the 2018 Circular.
The purpose of the 2019 Circular is to allow MFBs possess the capital required for them to service the unbanked and underbanked. However, it is uncertain if the MCR for Tier II MFBs, being N50 million, is enough to effectively achieve the purpose of the review.
It is observed that the 2019 Circular only refers to ensuring continued operations of MFBs in the rural, unbanked and underbanked areas of the economy as its purpose. This seems to undermine the purpose of the 2018 Circular which was to resolve the broader challenges of the micro finance sector viz: inadequate capital base, incapacity, weak corporate governance and ineffective risk management practices etc. The purpose of the 2018 Circular was long term and more focused on building a credible system for the Micro finance subsector. The superseding effect of the 2019 Circular seems to jettison this goal for a more economic based goal.
Nevertheless, the categorization of Unit II MFBs which are specifically to serve in rural areas, is a step towards achieving the CBN's objective to serve the unbanked and the financially excluded. The CBN's effort in aiding MFBs to meet their recapitalisation targets by extending the compliance timeframe is also commendable.
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