The Central Bank of Nigeria (CBN), last week, revoked 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. 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 The Act repealed the former Banks and Other Financial Institutions Act (BOFIA) 1991.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 micro finance 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 hammer, did the regulatory authorities investigate properly why the operators failed to comply with the rules and regulations? 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.

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Apart from ensuring financial inclusion and growth, they assist in poverty alleviation by enabling the poor and low-income households to have access to credit facility at short notice. They provide a safety net for those outside the traditional banking system. The provision of financial services to the poor and low-income has enabled small entrepreneurs to access credit facility at low interest rate. The MfBs have enhanced socio-economic development in rural areas.   

With an estimated 1.7 billion people around the world without access to financial services, we advise a review of the microfinance subsector in line with current socioeconomic challenges. If there is a time that MfBs, primary mortgage banks and Finance companies have become more relevant, it is now. Going forward, the CBN should ensure that due diligence is carried out in giving licences to operators of MfBs.

To improve the performance of MfBs, let their operators invest in flexible IT solutions and customer care. Before MfBs licences are approved, the CBN should ensure that the operators have digital infrastructure and requisite leadership skills. They should also emphasise staff training, employee motivation and good corporate governance.