Mandate: CBN cautions  MFBs against Forex transactions, wholesale banking

*The Central Bank of Nigeria states ‘for the avoidance of doubt and consistent with the permissible activities of specialised micro-institutions, MFBs (Microfinance Banks) are strictly prohibited from Foreign Exchange transactions’

Isola Moses | ConsumerConnect

For reportedly going beyond the remit of their operating licence in the economy, the Central Bank of Nigeria has advised Microfinance banking (MFB) institutions against engaging in certain prohibited activities, including wholesale banking and foreign exchange transactions.

ConsumerConnect reports Ibrahim Tukur disclosed this in a circular titled, “Cessation of Non-Permissible Activities by Microfinance Banks”, issued on behalf of the Financial Policy and Regulation Department of CBN.

The Bankers’ Bank stated: “The Central Bank of Nigeria has observed the activities of some Microfinance Banks that have gone beyond the remit of their operating licence by engaging in non-permissible activities, especially wholesale backing, foreign exchange transactions and others.

Some Microfinance Banks in Nigeria   Photo: BabaKasuwaFX

“Given the comparatively low capitalisation of MFBs, dealing in wholesale and/or Foreign Exchange transactions are a significant risk with dire consequences for financial system stability.”

The statement also noted:  “Therefore,  it has become imperative to remind all MFBs to strictly comply with the extant Revised Regulatory and Supervisory Guidelines for Microfinance Banks in Nigeria 2012.

“For the avoidance of doubt and consistent with the permissible activities of specialised micro-institutions: MFBs are strictly prohibited from foreign exchange transactions.”

The Bank further explained: “MFBs are to primarily focus on providing financial services to retail and/or micro-clients with a limitation of N500,000 per transaction for Tier 2 Unit MFBs and N1million for other categories.

“MFBs shall constitute a minimum of 80 percent of the total loans portfolio for MBs.

“The CBN would continue to monitor developments in the MFBs sector and apply stringent regulatory sanctions for violations of extant regulations, including revoking licenses of non-compliant MFBs.”

A recent report had said that some Microfinance Banks now give loans to United Kingdom-bound Nigerians, who use such funds as their ‘Proof of Fund’ (POF) to acquire visas to the foreign country.