Regulatory and Supervisory Framework for Microfinance Banks [MFBs] in Nigeria

This paper describes the supervisory and regulatory guidelines issued by the Central Bank of Nigeria to:

• Establish microfinance banks (MFB);
• Regulate microfinance activities.

It explains the permissible and the prohibited activities of the MFB, and describes the composition and qualification requirements for occupying the positions in the board and management of MFB.

The paper mentions the ownership and licensing requirements for starting a microfinance bank. It highlights the sources of funds and guidelines in relation to financial management, such as:

• Maintenance of book of accounts;
• Submission of quarterly returns by MFBs;
• Publication of audited financial statements;
• Penalties for late or false returns or other information.

As per the paper, the prudential requirements that every MFB has to comply with include providing information on the:

• Liquidity ratio;
• Capital funds adequacy;
• Fixed assets and long term investments;
• Cash reserve requirements.

It also highlights the operational requirements and controls for:

• Opening/ relocation and closing of branches;
• Change of name by licensed MFBs;
• Display of license;
• Declaration of interest rates;
• Internal controls such as having an internal audit unit.

The paper discusses the process for the appointment of the chief executive officer, principal officer and external auditor. It explains the transformation process of the following institutions to microfinance banks:

• Universal banks;
• Community banks;
• Non-governmental organizations.

Finally, it states the conditions for:

• Grant of approval in principle;
• Final license and commencement of business;
• Revocation of license.