by Lindsey Shaughnessy - Africa, Regulation, Transparency -

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

The Central Bank of Nigeria (CBN), Nigeria’s central banking authority, recently announced that in January 2011 it will introduce three new classes of banking licenses—for commercial banking, merchant banking and specialized banking—as well as discontinue the issuance of universal banking licenses. According to CBN, this new licensing system is part of a larger effort to improve banks’ quality and stability and to reform the Nigerian financial system.

In 2002, CBN’s Universal Banking Guidelines authorized universal banks to engage in “non-core banking financial activities” such as asset management and insurance underwriting; CBN now aims to rein in these activities through licensing and regulation reforms. The new commercial banking license will include regional, national and international authorization levels, while the specialized banking license will encompass microfinance, mortgage, interest-free (Sharia) and development finance banking. CBN’s objectives in creating these new licenses include divestment from non-banking activities, protection of depositor funds, closer regulation of banks and prevention of banking crises in the Nigerian financial sector.

CBN has required that all existing universal banks “prepare and submit to the CBN their plans on ensuring compliance with the requirements of the new banking regime not later than 90 days from October 4, 2010” [1]. As of July 2010, CBN reports total assets of NGN 7.37 trillion (the equivalent of USD 48.6 billion).

The United Nations Development Program (UNDP), a United Nations branch that provides development knowledge, experience and resources to 166 countries, recently agreed to provide technical assistance for CBN’s five-year microfinance development strategy [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).

About the United Nations Development Program (UNDP): The mission of UNDP is to provide developing countries with knowledge, experience and resources in line with the United Nations’ Millennium Development Goals (MDGs). UNDP operates in 166 countries, working directly with national governments. UNDP also publishes the annual Human Development Report, which provides a benchmark for development from each of its country offices.

Sources and Additional Resources:

[1] Vanguard Nigeria, “CBN to introduce three types of banks in 2011”, September 12, 2010. http://www.vanguardngr.com/2010/09/12/cbn-to-introduce-three-types-of-banks-in-2011/

[2] MICROCAPITAL BRIEF: “United Nations Development Programme Indicates 21% of Nigerian Adults Access Financial Services, Provides Support for Microfinance to Central Bank of Nigeria”, August 25, 2010. https://www.microcapital.org/microcapital-brief-united-nations-development-programme-indicates-21-of-nigerian-adults-access-financial-services-provides-support-for-microfinance-to-central-bank-of-nigeria/

MicroCapital’s Microfinance Universe profile: Central Bank of Nigeria (CBN)

MicroCapital’s Microfinance Universe profile: United Nations Development Program (UNDP)

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