CBN bars microfinance banks from forex market over ‘non-permissible activities’

Central Bank of Nigeria (CBN) has barred operators of microfinance banks (MFBs) in the country from engaging in foreign exchange (Forex) transactions.

Godwin Emefiele, Governor of Central Bank of Nigeria,

The bank said the decision is informed by activities of the MFBs which it said had ‘gone beyond the remit of their operating licenses,’ adding further that banks were  ‘engaging in non-permissible activities especially wholesale banking, foreign exchange transactions and others.’

CBN said: “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. It has therefore become imperative to remind all MFBs to strictly comply with the extant Revised Regulatory and Supervisors Guidelines tor Microfinance Banks in Nigeria 2012 (the Guidelines).

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“For the avoidance of doubt and consistent with the permissible activities of specialized micro-institutions: MIPBs 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 N1,000,000 for other categories.

‘Microcredit facilities shall constitute a minimum of 80 percent 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),” it added.

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