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The Central Bank of Nigeria (CBN) has announced an increase in the minimum capital requirements for microfinance banks (MfBs). The new capital requirements go into immediate effect for new applications, while existing MfBs are required to comply with them effective from April 1, 2020.

The new capital requirements for the different categories of MfBs are: Unit MfBs, N200 million; State MfBs, N1 billion; and national MfBs, N5 billion. According to a circular by the CBN released on Monday, existing MfBs are expected to explore the possibility of mergers and acquisitions and direct injection of funds to meet the new requirements.

Institutions that meet the capital requirements as well as demonstrate the existence of strong corporate governance in their operations would be allowed to open accounts at the CBN office within their state of operation. They will also become channels for micro funding activities of the CBN and the Development Bank of Nigeria.

According to the CBN, the new minimum capital requirements will be included in the Revised Regulatory and Supervisory Guidelines for Microfinance Banks, Code of Corporate Governance for Microfinance Banks and sector-specific Prudential Guidelines for Microfinance Banks, to be issued soon.

The CBN had introduced the Microfinance Policy, Regulatory and Supervisory Framework in December 2005 and revised it in 2011 to increase financial inclusion rate in the country, improve access to financial services for the active rural poor and pursue poverty eradication.

The Director of Financial Policy and Regulation Department at the CBN, Kevin Amugo said, “The CBN has reviewed the state of health of the sub-sector and is of the view that microfinance banks, as presently constituted, would be unable to meet the critical targets set out in the Microfinance Policy.”

He added that the microfinance banking sub-sector had been contending with challenges such as inadequate capital base, weak corporate governance, ineffective risk management practices, dearth of requisite capacity and mission drift.

Recently, the CBN revoked the licenses of 154 MfBs, which had already closed shop, become insolvent, terminally distressed or voluntarily liquidated.