CBN warns microfinance banks against forex transactions and wholesale banking

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CBN warns microfinance banks against forex transactions and wholesale banking
CBN warns microfinance banks against forex transactions and wholesale banking

Microfinance institutions have been warned by Nigeria’s Central Bank not to engage in certain banned activities, such as wholesale banking and foreign exchange transactions.
This was revealed in a circular issued by Ibrahim Tukur on behalf of the CBN’s Financial Policy and Regulation Department, headlined “Cessation of non-permissible operations by microfinance banks.

“The Central Bank of Nigeria has noticed the operations of some microfinance institutions that have gone beyond the boundaries of their operating license by engaging in non-permissible activities, particularly wholesale backing, foreign exchange transactions, and other activities,” the CBN stated.

Dealing in wholesale and/or foreign exchange transactions is a big risk for MfBs, given their low capitalization, with catastrophic ramifications for financial system stability. As a result, it is vital that all MfBs adhere to the current Revised Regulatory and Supervisory Guidelines for Microfinance Banks in Nigeria 2012.
“For the avoidance of dispute, and in accordance with the allowed operations of specialized micro-institutions, MfBs are expressly barred from transacting in foreign currencies.

“The CBN will continue to monitor developments in the MfB sector and will impose strict regulatory measures for infractions of existing regulations, including canceling licenses of non-compliant MFBs,” says the statement.

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