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  • Business - Banking & Finance
  • Updated: August 21, 2021

CBN Bans Microfinance Banks From Forex Transactions

CBN Bans Microfinance Banks From Forex Transactions

The Central Bank of Nigeria (CBN) has stated that it will apply severe sanctions on Microfinance Banks (MFBs) that engage in foreign exchange (forex) transactions and wholesale banking in defiance of extant regulation.

The apex bank issued the warning in a circular signed by Ibrahim Tukur, CBN’s financial and regulation department, titled ‘Cessation of Non-Permissible Activities by Microfinance Banks’ dated August 19, 2021.

The CBN stated clearly in the circular that MFBs are prohibited from foreign exchange transactions; rather they are to primarily focus on providing financial services to retail and/or micro-clients.

“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,” the circular reads.

“It has therefore become imperative to remind MFBs to strictly comply with the extant Revised Regulatory and Supervisory Guidelines for Microfinance Banks in Nigeria 2012 (the Guidelines).”

The apex bank said MFBs are to primarily focus on providing financial services to retail and/or micro- clients while they are “strictly prohibited from foreign exchange transactions”.

It said microcredit and retail transactions carried out by MFBs are limited to N500,000 per transaction for Tier 2 Unit MFBs and N1,000,000 for other categories.

CBN added that microcredit facilities shall constitute a minimum of 80 per cent of the total loans portfolio for MFBs.

“The CBN will continue to monitor developments in the MFB sector and apply severe regulatory sanctions for breaches of extant regulations, including revoking the license of non-compliant MFBs (in line with Section 19 of the Guidelines).”

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