MICROCAPITAL BRIEF: Regulation Restructuring by Central Bank of Nigeria (CBN) May Harm Microfinance Banks

The Central Bank of Nigeria (CBN) announced plans to repeal universal banking by September of 2011. Universal banking, introduced to Nigeria in 1999, allows a bank to function in all sectors under a single body of regulation [1]. The CBN would revert to specialized banking, its pre-1999 regulation structure, where banks are licensed to act in a single sector. This new structure would include microfinance-specialized banks as their own category. Samuel Oni, CBN Director of Banking Supervision, said the regulatory reform would reduce operating risk and bring the CBN closer in line with the International Financial Reporting Standards [2], a body of best practices maintained by the International Accounting Standards Board.

While the ultimate effect of the reform cannot be known, some in the microfinance community have expressed concern regarding its consequences. A BusinessDay editorial quoting numerous anonymous sources claims the legislation may bring an end to microfinance banking in Nigeria [4]. These sources point to waning consumer confidence in microfinance banks and new competition from larger banks as the primary threats to microfinance. They suggest depositors to microfinance banks were more directly affected by the global recession due to these banks relatively small capitalization, and therefore would be easily attracted by larger financial institutions.

By Matthew Castner, Research Assistant

Additional resources:

[1] Next: “CBN to Abolish Universal Banking Licenses,” Bassey Udo, March 16, 2010, http://234next.com/csp/cms/sites/Next/Home/5541153-146/cbn_to_abolish_universal_banking_licenses.csp

[2] BusinessDay: “CBN to Phase Out Universal Banking by September 2011,” Onyinye Nwachukwu, March 16, 2010, http://www.businessdayonline.com/index.php?option=com_content&view=article&id=9292:cbn-to-phase-out-universal-banking-by-september-2011&catid=1:latest-news&Itemid=18

[3] International Financial Reporting Standards: “AICPA IFRS Resources,” http://www.ifrs.com/

[4] BusinessDay: “Proposed Univesal Banking Unsettles Microfinance Banks,” John Omachonu and Hope Moses-Ashike, April 14, 2010, http://www.businessdayonline.com/index.php?option=com_content&view=article&id=10085:proposed-universal-banking-unsettles-microfinance-banks-&catid=1:latest-news&Itemid=18

MicroCapital’s Microfinance Universe profile: Central Bank of Nigeria: https://www.microcapital.org/microfinanceuniverse/tiki-index.php?page=Central+Bank+of+Nigeria+%28CBN%29

Browse the MicroCapital Universe and add your entry to the wiki at https://www.microcapital.org/microfinanceuniverse/

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