CBN warns Microfinance Banks against prohibited forex, wholesale banking transactions

The Central Bank of Nigeria (CBN) has issued a warning to Microfinance Banks (MFBs) to desist from offering non-permissible activities especially foreign exchange and wholesale banking transactions.

This was contained in a circular to all MFBs signed by the Director of Financial Policy and Regulation Department, Ibrahim Tukur.

According to the apex bank, some MFBs are engaging in non-permissible activities which pose risk to the financial system.

The circular read: “The Central Bank of Nigeria (CBN) has observed the activities of some 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 thus, therefore, become imperative to remind all MFBs to strictly comply with the extant Revised Regulatory and Supervisory Guidelines for MFBs 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 500,000 per transaction for tier 2 unit MFBs and N1,000,000 for other categories; and Micro credit facilities shall constitute a minimum of 80 per cent of total loans portfolio for MFBs.”

The CBN promised it will continue to monitor developments in the MFB sector and apply severe regulatory sanctions for breaches of extant regulations, including revoking the licence of non-compliant MFBs (in line with section 19 of the guidelines).

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