The Central Bank of Nigeria, CBN, has continued its crackdown on all illegal foreign exchange transactions in Nigeria, just as it issued a notice warning microfinance banks operating in the country to desist from all activities outside its object clause, including but not limited to foreign exchange transactions, wholesale banking, among others.

This is according to a recent circular issued by the financial policy and regulation department of the CBN, and referenced ‘’FPRD/DIR/PUB/CIR/01/020.’’

The apex bank in the aforementioned circular reminded all Microfinance Banks (MFBs) to strictly comply with the provisions in the extant ‘Revised Regulatory Supervisory Guidelines for Microfinance Banks in Nigeria 2011’. The aforementioned regulatory provision emphatically stated that MFBs are strictly prohibited from foreign exchange transactions, and are to primarily focus on providing financial services to retail and /or micro-clients.

Further provisions in the extant regulatory framework states that ‘’Microcredit and retail transactions carried out by MFBs are limited to N500,000 per transaction for Tier 2 Unit MFBs and N1,000,000 for other categories.’’ These micro-credit facilities shall constitute a minimum of 80 percent of the total loans portfolio for MFBs.

READ: Why CBN suspended the account of Bamboo, RiseVest, and other fintech companies

Commenting on the recent development, the apex bank said: ‘’The Central Bank of Nigeria (CBN) has observed the activities of some Microfinance Banks (MFBs) 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 and/or foreign exchange transactions is a significant risk with dire consequences for financial system stability. It has therefore become imperative to remind all MFBs to strictly comply with the extant Revised Regulatory and Supervisory Guidelines for Microfinance Banks in Nigeria 2012 (the Guidelines).’’

In conclusion, the apex bank promised to 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.

Back story: In the same vein, recall that the apex bank had commenced the regulation of the Nigerian foreign exchange market after it outlawed the sale of foreign exchange to Bureau de Change (BDCs) operators.

Just recently, the CBN suspended the bank accounts of four fintech companies- Bamboo, Chaka, Trove and Risevest, for a period of 180 days, for breaching similar provisions.