CBN Cautions MFBs Against Forex, Wholesale Banking Transactions

The Central bank of Nigeria (CBN) has prohibited Microfinance Banks (MFBs) from executing foreign exchange transactions, citing concerns about their financial capability to handle such.

This was stated in a circular by the apex bank titled: “Cessation of non-permissible activities by MFBs”, dated August 19, 2021.

The circular number FPRD/DIR/PUB/CIR/01/020 noted that some MFBs were engaging in wholesale banking and forex transactions which posed great risks for the banking system.

The circular reads in full, “The Central Bank of Nigeria has observed the activities of some MBFs that have gone beyond the remit of their operating licenses by engaging in non-permissible activities, especially wholesale banking, foreign exchange transactions and others.

“Given the comparatively low capitalization of MFBs, dealing in wholesale banking and/or foreign transactions is a significant risk with dire consequences for financial systems stability.

“It has therefore become imperative to remind all MFBs to strictly comply with the extant Revised Regulatory and Supervisory Guidelines for MFBs in Nigeria 2012 (Guidelines).

“For the avoidance of doubt and consistent with the permissible activities of specialized micro institutions, MFBs are strictly prohibited from foreign exchange transactions; MFBs are to primarily focus on providing financial services to retail and /or micro clients; micro-credit and retail transactions carried out by MFBs are limited to N500, 000 per transaction for Tier 2 Unit MFBs and N 1 million for other categories; micro-credit facilities shall constitute 80 percent of total loans portfolio for MFBs

“The CBN will continue to monitor developments in the MFB sector and apply severe regulatory sanctions for breaches of extant regulations, including revoking the license of non-compliant MFBs ( in line with section 19 of the Guidelines).”