MICROCAPITAL BRIEF: Central Bank of Nigeria Revokes Licenses of 224 Microfinance Banks

The Central Bank of Nigeria (CBN), Nigeria’s central banking authority, recently revoked the licenses of 224 of the country’s 820 microfinance banks. CBN cited varying reasons for the revocations, among them insolvency, poor operations management, high levels of non-performing loans, undercapitalization, poor board governance and corrupt management officials. CBN also noted that many of the country’s microfinance banks had been competing for relatively high-income customers of commercial banks, thus leaving poor populations without financial access. As the country’s microfinance banks are insured by the Nigeria Deposit Insurance Corporation, each microfinance bank depositor will be reimbursed for lost deposits of up to NGN 100,000 (the equivalent of USD 643).

Earlier this month, CBN announced plans to discontinue issuance of universal banking licenses in an effort to improve the quality of banks and to reform the country’s financial system. CBN requires that all existing banks comply with the new licensing system by filing as commercial, merchant or specialized banks; the specialized banking license includes microfinance, mortgage, interest-free (Sharia) and development finance banking [2].

By Lindsey Shaughnessy, Research Associate

About the Central Bank of Nigeria (CBN): 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).

Sources and Additional Resources:

[1] Wall Street Journal, “Central Bank of Nigeria Revokes Licenses of 224 Microfinance Banks”, by Obafemi Oredein (Dow Jones), September 28, 2010. http://online.wsj.com/article/BT-CO-20100928-716321.html

[2] MICROCAPITAL BRIEF: “Central Bank of Nigeria to Discontinue Issuance of Universal Banking Licenses, Introduce Three New Banking License Classes in 2011, Microfinance to Fall Under ‘Specialized’ Category”, September 20, 2010. https://www.microcapital.org/microcapital-brief-central-bank-of-nigeria-to-discontinue-issuance-of-universal-banking-licenses-introduce-three-new-banking-license-classes-in-2011-microfinance-to-fall-under-specialized-categ/

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