CBN Revocation of Microfinance Banks: Appropriate as lesson for errant MFBs

Barely two weeks ago the Central Bank of Nigeria (CBN) hit its hammer by revoking  the operating licences of about 132 Microfinance Banks (MfBs), four Primary Mortgage Banks and three Finance Companies across the country for the failure to meet minimum performance standards which is targeted at strengthening the Financial institutions and building more confidence of the people.

The revocation order was contained in two separate gazettes released on May 23, 2023. According to the official federal government gazette, the affected financial services institutions have ceased to exist because they also deviated from the type of operation for which their licences were issued for a period of six months.

The affected firms failed to fulfill or comply with the conditions subject to which their operating licences were granted. They also failed to comply with the obligations legally imposed on them by the CBN in accordance with the provisions of the Banks and Other Financial Institutions Act (BOFIA) 2020.  Under this provision, the MfBs should no longer advance unsecured loans above N1 million, except with the express approval and compliance with the CBN regulations or collaterisation. The Act repealed the former Banks and Other Financial Institutions Act (BOFIA) 1991.

The four Primary Mortgage Banks whose licences were revoked are Resort Savings & Loans, Safe Trust Mortgage Bank, Adamawa Savings & Loans, Kogi Savings & Loans. The affected finance companies are: HHL Investment and Trust Ltd; TFS Finance Limited, and Treasures and Trust Ltd. The names of the affected MfBs have equally been widely published in major national newspapers by the CBN. The Nigeria Deposit Insurance Corporation (NDIC) has assured depositors of the affected financial institutions of prompt payment of their insured sum.

The NDIC supervises banks and other financial institutions to protect depositors’ funds, ensure monetary stability and effective/efficient payment of insured sum as well as promote competition and innovation in the banking industry. It is good that the NDIC boss, Bello Hassan, has promised to commence the process of payment of the depositors’ insured amount. It will soon commence the verification of eligible depositors of the liquidated firms. Also, depositors are required to obtain proof of account ownership that will facilitate a seamless verification of payment. While the maximum specified limit for a depositor of a microfinance bank is N200,000, that of a Primary Mortgage Bank is N500,000.   It is unfortunate that the affected MfBs failed to comply with stipulated operation guidelines. However, the revocation will affect the larger society on account of the roles of MfBs in the economy. Before the CBN’s hammer, directors of these failed MFBs are supposed to be prosecuted particularly for insider abuses. Nonetheless, if the firms breached the laws setting up the MfBs, they should be sanctioned. At the same time, we acknowledge the importance of MfBs in the economy.

Prior to the drastic action by the Apex bank, several of the microfinance institutions engaged in illegal operations thereby conniving with some saboteurs in the government circles to divert billions of Naira that is made for the Public.

The cogent reasons given by the CBN with statutory responsibility of regulating the activities of these Mfbs will instil more confidence among Nigerians thereby closing the gap of financial illiteracy.

The fallout of the Apex bank sanction made the National Association of Microfinance Banks (NAMB) to have directed all licensed MFBs nationwide to update it on their recapitalisation status for assessment and follow up actions with the regulatory authorities.

The decision of the umbrella body was sequel to vigorous deliberations on the latest licence revocation action of many MFBs at an emergency meeting of the leaders of the association which is necessary for customers to truly know the genuine banks they’re dealing with to avoid scam.

The association had in a statement issued by the Executive Secretary of NAMB, Mr Shikir Nuhu Caleb, on the decisions taken at the emergency meeting, the leaders further advised any MFB that had fully re-capitalised but was yet to be approved by CBN to present its submissions to the secretariat with a summary of its recapitalisation status as at date.

Commenting on the licence revocation saga during a post-meeting chat with journalists in Abuja, the NAMB National President, Mr Joshua Ukute, rued the ugly development and promised that the “leadership of the association  will continue to intensify its self-regulation activities in all MFBs nationwide to forestall this type of occurrence.

Though, there are many sympathisers with some of MFBs that their licenses were revoked however we are fully in support of the decision taken by the central bank which is mainly to eradicate illegal activities and to ensure that Nigerians do not fall into the hands of fraudulent people who claim to be operating Financial institutions. This is a big lesson for others still operating without adequate capital base.