CBN Set to Categorise Microfinance Banks
- By Saka Khaliq
- Published April 11th, 2011
- News
- Unrated
The Central Bank of Nigeria (CBN) is making plans to categorise microfinance banks in the country into rural and urban institutions, BusinessWorld can now reveal. In the categorisation process, the rural-based microfinance banks must be capitalised to the tune of N30 million, while microfinance banks in urban centres must have minimum of N100 million capital base.
Our source said this development is going to be included in the new microfinance policy set to be launched before the end of the year. It was reliably gathered that after the apex bank must have made the announcement, the existing microfinance institutions will be given six months to recapitalise to the new minimum capital requirement. Any microfinance bank that fails to meet the new minimum capital requirement, our source said, will have its licence withdrawn.
Industry sources said any new bank that intends to begin operation is expected to have the newly prescribed capital base before it could get approval from the apex bank. Currently, the minimum capital base for a unit-based microfinance firm is N20 million across board.
The increasing cost of buildings and other assets make the N20 million capital base inadequate, especially for institutions in urban centres. The CBN is optimistic that when the new minimum capital base comes into force the microfinance market will be repositioned for better services.
The dichotomy in capital requirement for urban and rural banks is necessitated by differences in operational demands. While banks in urban areas spend more on buildings, infrastructure and marketing, as well as salary package of staff, microfinance firms in rural areas spend less in these areas. Also, urban-based banks are said to be more prone to loan defaults than rural-based institutions, although the former can boast better deposit mobilisation than the latter. When the implementation of this new policy starts later in the year, more than 70 per cent of microfinance banks may have to adjust their capital base to the new requirement, even as about 20 to 30 per cent have already crossed this benchmark.
Our source said this development is going to be included in the new microfinance policy set to be launched before the end of the year. It was reliably gathered that after the apex bank must have made the announcement, the existing microfinance institutions will be given six months to recapitalise to the new minimum capital requirement. Any microfinance bank that fails to meet the new minimum capital requirement, our source said, will have its licence withdrawn.
Industry sources said any new bank that intends to begin operation is expected to have the newly prescribed capital base before it could get approval from the apex bank. Currently, the minimum capital base for a unit-based microfinance firm is N20 million across board.
The increasing cost of buildings and other assets make the N20 million capital base inadequate, especially for institutions in urban centres. The CBN is optimistic that when the new minimum capital base comes into force the microfinance market will be repositioned for better services.
The dichotomy in capital requirement for urban and rural banks is necessitated by differences in operational demands. While banks in urban areas spend more on buildings, infrastructure and marketing, as well as salary package of staff, microfinance firms in rural areas spend less in these areas. Also, urban-based banks are said to be more prone to loan defaults than rural-based institutions, although the former can boast better deposit mobilisation than the latter. When the implementation of this new policy starts later in the year, more than 70 per cent of microfinance banks may have to adjust their capital base to the new requirement, even as about 20 to 30 per cent have already crossed this benchmark.
