DEVELOPING A LEGAL & REGULATORY FRAMEOWRK FOR AN EFFECTIVE SUPERVSION OF MICROFINANCE INSTITUTIONS

1. DEVELOPING A LEGAL & REGULATORY FRAMEOWRK FOR AN EFFECTIVE SUPERVSION OF MICROFINANCE INSTITUTIONS By Mr. YemiBedu

2. INTRODUCTION • The Microfinance Policy, Supervisory and Regulatory Framework for Nigeria was first launched in December 2005. • On 29th April, 2011, CBN considered and approved the revised Microfinance Policy, Regulatory and Supervisory Framework for Nigeria. • In September 2012, the Revised Regulatory and Supervisory Guidelines for Microfinance Banks was approved.

3. POWER TO REGULATE • The policy has been prepared in exercise of the powers conferred on the Central Bank of Nigeria by the provisions of Section 28, sub-section (1) (b) of the CBN Act 24 of 1991 [as amended] and in pursuance of the provisions of Sections 56-60(a) of the Banks and Other Financial Institutions Act [BOFIA] 25 of 1991 [as amended]. • The review of the policy is in exercise of the powers conferred on the CBN by the provisions of Section 33 (1) (b) of the CBN Act No. 7 of 2007 and Sections 56-60 (a) of the Banks and Other Financial Institutions Act [BOFIA] NO 25 of 1991 [as amended).

4. Policy Review • The revised policy provides for three categories of microfinance banks (MFBs) and stipulated minimum capital requirements for each category, viz: • Unit MFB – N20 million • State MFB - N100 million • National MFB - N1 billion

5. REGULATION • The licensing of Microfinance Banks is the responsibility of the Central Bank of Nigeria. • The regulatory function is carried out by a separate department known as Financial Policy and Regulatory Department (FPRD) • This is implemented through issuance of guidelines, circulars etc

6. Regulation……. • All licensed MFBs are allowed to carry out permissible activities. • While they are prohibited from carrying out certain activities e.g. • Acceptance of public sector [government] deposit • Foreign exchange transactions; • International electronic funds transfer;

7. SUPERVISION • The Central Bank of Nigeria supervises microfinance banks through its Other Financial Institutions Supervision Department (OFISD). • The OFISD supervises operations of microfinance banks through on-site and off-site inspection. • The CBN is required to carry out onsite examination of an MFB at least once annually • This is carried out in conjunction with Nigeria Deposit Insurance Corporation (NDIC)

8. Supervision………….. • This frequency of on-site visit has been difficult to achieve in the sub-sector, due to the large number of microfinance banks spread over a large geographical area. • As at 30th September, 2013, number of licensed MFBs stood at 908. • The following areas are regulated with approval required from the CBN: • Ownership and equity capital • Board and Management • Annual audited accounts • Returns and information in prescribed formats

9. FRAMEWORK FOR THE SUPERVISION • The following are the components of the Microfinance Policy Framework: • All microfinance banks to be licensed and supervised by the CBN • Establishment of National Microfinance Consultative Committee • Use of Credit Bureau for credits references • Deposit Insurance Scheme by the NDIC • Microfinance Certification Programme requiring all management staff to be examined and certified

10. Framework…………… • Establishment of Apex Associations of Microfinance Banks known as National Association of Microfinance Banks (NAMB) as an independent advocacy • Establishment of Rating Agencies • Establishment of Microfinance Development Fund • Disclosure of sources of funds/capital • Entrenchment of Corporate Governance for Microfinance Banks

11. Supervision………. • One of the tools used in carrying out the supervision is the Regulatory and Supervisory Guidelines for Microfinance Banks • These supervisory and regulatory guidelines are issued by the Central Bank of Nigeria in exercise of the powers conferred on it by the provisions of Section 28 subsection (1) (b) of the CBN Act 24 of 1991 [as amended] and in pursuance of the provisions of Sections 56-60A of the Banks and Other Financial Institutions Act [BOFIA] 25 of 1991 [as amended].

12. Supervision……………. • Assessment is carried out regularly to ensure that MFBs meet prudential requirements such as: • Liquidity Ratio • Compulsory investment in Treasury Bills • Capital Funds Adequacy • Limit of Investment in Fixed Assets • Revaluation of Fixed Assets • Fixed Assets/Long-term Investments and Branch Expansion

13. Supervision……… • Maintenance of Capital Funds • Restrictions on Declaration of Dividend • Limit of Lending to a Single Borrower and Related Party • Loan Portfolio Composition • Maximum Equity Investment Holding Ratio • Provision for Classified Assets • Unsecured Lending Limits: • Loan Documentation Requirement: • Portfolio- At- Risk [PAR] • Change of Name by MFBs.

14. DELEGATED SUPERVISION • Monitoring Consultants • Need for CBN to intensify the sector surveillance • Partnership with NDIC • Engagement of private consultants/External auditors to review the books of MFBs • Commencement in this last quarter

15. Monitoring Consultants……..2 • Objectives • To coordinate and supervise the process of monitoring and enforcement of MFBs compliance with Examiners’ recommendations and all other regulatory/supervisory recommendations. • To engage consultants to complement the existing supervisory arrangement. • To increase the frequency of on-site visits. • Analyse the financial health of the MFBs in line with Examiner’s recommendations. • To ensure timely implementation of Examiners’ recommendations by the MFBs.

16. THANKS FOR YOUR ATTENTION