The Central Bank of Nigeria (CBN), the nation’s central banking authority, recently announced that it has commenced inspections to assess the level of compliance with its operational guidelines at the 103 microfinance institutions (MFIs) that were granted approval-in-principle after being among the 224 MFIs that had their licenses revoked in September 2010. Ongoing difficulties in the local microfinance industry have been blamed on factors including the following: over-saturation of MFIs, a disproportionate concentration of MFIs in urban centers, under-capitalization, poor asset quality and poor management information systems. The inspections are intended to assess the liquidity, capital adequacy and other vital signs of the 103 MFIs vis-à-vis CBN guidelines to ascertain whether they are on track to meet the requirements necessary to receive standard operating licenses [1, 2].
The inspections are part of a larger effort by the Nigerian government to improve the stability of the country’s microfinance industry, including a new requirement that MFIs submit monthly electronic operational reports to CBN. CBN also reportedly plans to announce policy reforms later this year that are intended to “drastically” reduce the number of MFIs operating in the country.
Mr Sanusi Lamido Sanusi, CBN governor, affirmed that “The Central Bank has carried out a comprehensive review of the microfinance policy and regulatory framework to deepen the sector’s operations and ensure [a] much more robust regulatory environment.” In April, MicroCapital reported that the Nigeria Deposit Insurance Corporation (NDIC), an agency of the federal government that guarantees the settlement of insured deposits, would pay approximately NGN 9.8 billion (USD 63 million) to 731,000 depositors of 91 MFIs whose licenses were revoked in 2010 and have not been reinstated [3].
By Jacqueline Foelster, Research Associate
About the Central Bank of Nigeria (CBN): The Central Bank of Nigeria (CBN), established in 1958, is Nigeria’s central banking authority. As defined by the 1958 Act of Parliament that created CBN, its statutory mandates are as follows: “to issue legal tender currency; to maintain external reserves; to safeguard the international value of the legal tender currency; to promote monetary stability and a sound financial system in Nigeria; and to act as banker and financial adviser to the Federal Government.” As of July 2010, CBN reports total assets of NGN 7.37 trillion (the equivalent of USD 48.6 billion).
About the Nigeria Deposit Insurance Company (NDIC): The Nigeria Deposit Insurance Corporation (NDIC) is a quasi-independent agency of the federal government of Nigeria. Its purpose is to protect depositors and guarantee the settlement of insured funds when a deposit-taking financial institution can no longer repay its deposits, thereby helping to maintain the stability of the financial system.
Sources and Additional Resources:
[1] The Daily Independent, April 30, 2011, “Breathing new life into MfBs”, http://www.independentngonline.com/DailyIndependent/Article.aspx?id=32998
[2] Vanguard, May 2, 2011, “MFB operators in frenzy as CBN commences inspection”, http://www.vanguardngr.com/2011/05/152614/
[3] MicroCapital.org Brief, April 26, 2011, “Depositors of Closed Microfinance Institutions (MFIs) to be Reimbursed up to $63m by Nigeria Deposit Insurance Corporation (NDIC)”, https://www.microcapital.org/microcapital-brief-depositors-of-closed-microfinance-institutions-mfis-to-be-reimbursed-up-to-63m-by-nigeria-deposit-insurance-corporation-ndic/
MicroCapital.org Brief, April 23, 2011, “Central Bank of Nigeria (CBN) Governor Explains Delay in Microfinance Regulatory Framework”, https://www.microcapital.org/microcapital-brief-central-bank-of-nigeria-cbn-governor-explains-delay-in-microfinance-regulatory-framework/
MicroCapital.org Brief, March 21, 2011, “Central Bank of Nigeria (CBN): No More Time for Microfinance Banks (MFBs) to Recapitalize”, https://www.microcapital.org/microcapital-brief-central-bank-of-nigeria-cbn-no-more-time-for-microfinance-banks-mfbs-to-recapitalize/
MicroCapital.org Brief, October 1, 2010, “Central Bank of Nigeria Revokes Licenses of 224 Microfinance Banks”, https://www.microcapital.org/microcapital-brief-central-bank-of-nigeria-revokes-licenses-of-224-microfinance-banks/
MicroCapital Universe Profile: Central Bank of Nigeria (CBN), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Central+Bank+of+Nigeria+%28CBN%29
MicroCapital Universe Profile: Nigeria Deposit Insurance Company (NDIC), https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Nigeria+Deposit+Insurance+Corporation+%28NDIC%29
Browse the MicroCapital Universe and add your entry to the wiki at: https://www.microcapital.org/microfinanceuniverse/
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