CBN issues new rules for micro-finance banks

By Chijioke Nelson, The Guardian

• Okays e-payment dispute arbitration framework

TO strengthen micro-finance banks in the country, the Central Bank of Nigeria (CBN) has released a new set of rules for their operations.

The fresh rules are captured under the “Revised Regulatory and Supervisory Guidelines for Micro-Finance Banks (MFBs).”

The apex bank noted the potential of MFB in poverty reduction, economic growth and development in any economy, especially in the attainment of Nigeria’s Vision 20: 2020.

The bank also disclosed its resolve to collaborate with other agencies of the government in monitoring the activities of financial corporations and non-governmental organisations that have significant operations due to their micro savings and deposit taking activities.

According to the revised guidelines, any of these institutions that attains total assets of N20 million or a total membership of 2000 would be encouraged to transform to the relevant MFB.

“Collaboration between CBN, Nigeria Deposit Insurance Corporation, Securities and Exchange Commission, National Insurance Commission Corporate Affairs Commission, National Association of Microfinance Banks, Associations of Non-Bank Microfinance Institutions in Nigeria and other relevant agencies shall be promoted to reduce arbitrage in the practice of micro-finance in the country,” it said.

The revised regulatory and supervisory guidelines noted that the authorities have taken active measures to ensure efficient and effective microfinance delivery through the development of the appropriate framework based on the particular features and associated risks.

Microfinance banks have been in a long-drawn battle lines with the CBN since the inception of the current banking reform agenda, with the apex bank insisting on removing anomalies and enforcing sanity in the sub-sector.

The MFBs, like the deposit money banks, have been enmeshed in issues of ethics, governance and exceeding of limits allowable in the enabling Acts governing their operations.

The apex bank noted that a retrospective analysis of the operations of MFBs in the country in the last six years, showed an urgent need for the revision of the guidelines.

“In general, the guidelines that adequately address the features and risks of microfinance would effectively support the orderly development and sustainability of the institutions to enable them to achieve microfinance objectives of financial inclusion and poverty alleviation.

“The implementation of the microfinance policy over the past six years and the experience gained, underscore the need for the review of the existing regulatory and supervisory guidelines. This second edition addresses current realities and developments in the sub-sector. This document is, therefore, aimed at promoting innovative, rapid and balanced growth of the industry, leveraging on global best practice in microfinance banking.

“These guidelines recognise the distinctiveness of micro clients, ownership structure of the institutions, their credit methodology, and the central position of savings/deposits in the intermediation process. It also adopts measures to ensure the soundness and safety of the institutions, and the protection of depositors, especially low-income clients. Also, it defines institution types, loan documentation, portfolio classification, loan loss provision and write-offs, amongst others, and provides the basis for the establishment, operations, regulation and supervision of microfinance banks, and institutions.”

These supervisory and regulatory guidelines are issued by the CBN in exercise of the powers conferred on it by the provision of Section 33 subsection (1)(b) of the CBN Act 7 of 2007 and in pursuance of the provisions of Section 61-63 of the Banks and Other Financial Institutions Act (BOFIA) 25 of 1991 (as amended).

The apex bank has also inaugurated a sub-committee on the arbitration framework to determine and oversee the objectives and scope of the arbitration framework.

Other responsibilities include the determination of e-payment disputes that merit the panel’s hearing, comprehensive strategy for enforcement, approach to handling each type of dispute, structure and composition of panel and funding, among others.

The sub-committee members include Access Bank, Ecobank, First City Monument Bank, First Bank, United Bank for Africa, Zenith Bank and Interswitch.

Others are Nigeria Niger-Bank Settlement System, Digital Encode, Unified Payments, Economic and Financial Issues Commission, Public Complaint Commission, Consumer Protection Council, and CBN.

Electronic payment disputes and fraud have been some of the many challenges bedevilling the apex bank’s cashless policy, which were manifest in the pilot scheme in Lagos.

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