CBN's August Circular to Microfinance Banks: A Potential Fall of the Hammer?
The CBN issued a stern warning to MfB licence holders to refrain from non-permissible activities. This article examines the implications for digital banks operating under MfB licences and the potential clash with financial inclusion goals.
In a circular dated August 19, 2021, the Central Bank of Nigeria issued a stern warning to Microfinance Bank licence holders to refrain from engaging in non-permissible activities within the extant laws and regulations. The circular specifically warns licence holders to desist from foreign exchange transactions, exceeding transaction limits for their licence tier, or risk losing their licences.
Implication for Fintechs and Digital Banking
Given that there is yet no digital banking licence, many investors have set up challenger banks under the MfB licence. Circulars like this bind these companies as much as the brick and mortar MfBs. Digital players in the MfB scene will have to revisit their product offerings to ensure compliance with the credit and transaction limits.
It remains to be seen whether the stance of the CBN and regulatory limits on MfBs may have some implication for the financial inclusion goals in Nigeria especially in relation to the underserved. While the tiered restrictions on credit and retail transactions makes sense for brick and mortar MfBs, it is seemingly restrictive on their digital counterparts providing banking services to underserved Nigerians.
We expect that the CBN intends to impose some sanctions on erring MfBs in the foreseeable future. MfBs, particularly the digital banks, are expected to make modifications to their product offerings to prevent regulatory sanctions.
Originally published as a Regcompass Newsletter