Microfinance banks operating unauthorized branches shall be punished by CBN

The Director of Other Financial Institutions Supervision Department, Central Bank of Nigeria, Mr O A Fabamwo, has issued a Circular (numbered OFI/DIR/CIR/GEN/01/09 dated 17 December 2012) in the last month of the 2012 giving a clear reminder to all the MFBs to not to indulge in opening unauthorized branches.

What are Unauthorized Branches?

The Central Bank of Nigeria (CBN), in the said Circular went on to clarify what are unauthorized branches. Here is an extract from the Circular that explains how CBN considers unauthorized branches:

For the avoidance of doubt, all ‘customer interaction centres’, ‘meeting-points’ and ‘customer service centres’, or similar outlets, once located outside the registered business premises of a Unit MFB shall be regarded as unauthorized/unapproved branches/cash centres. All previous approvals for such outlets for Unit MFBs have become null and void from the date of approval of the Revised Policy Framework by the Board of Directors of the CBN.

If you are the Director or a Shareholder of a Microfinance Bank, its a high-alert time to check if your management has created any additional outlets to carry out operations.

Is it wrong for MFBs to have an Additional Outlet?

According to the Revised Microfinance Policy Framework, MFBs that are licensed to operate as a Unit MFB are not authorized to open any additional branches, even in the name of an outlet. Similarly, MFBs that are licensed to operate as State MFB are not authorized to open any additional branches beyond what they have been approved for and paid for. Same applies for National MFB.

It is a simple message that CBN wants to pass on - Do your business within the limits of what you are authorized to do.

How Much is the Penalty for Non-Compliance?

According to Section 13.1(b)  of the Revised Guidelines, the penalty for operating a branch/cash center without a prior approval of CBN is as follows:

Cash Penalty:

• N 250,000 per branch for a Unit MFB
• N 500,000 per branch for a State MFB
• N 1,000,000 per branch for a National MFB

In addition,

• Such unapproved branched/cash centres shall be closed within thirty (30) days.
• Failure to close an unapproved branch or cash centre, shall attract a fine of N5,000 for each day of default, irrespective of the category of MFB. 

Moreover,

• Failure to comply with any directive issued by the CBN, as stipulated in Section 19(i) of the Revised Guidelines for MFBs, is a ground for revocation of licence.

Now that is indeed a serious penalty that no MFB would wish to be part of. Is your MFB fully compliant with the latest CBN guidelines? You better check it once again.

Is the CBN Really Serious about it?

Oh Yes..! In the recent news, CBN is all set to launch a Surveillance Scheme to monitor all such activities by MFBs. The Scheme is ready to be operational anytime in the coming days. Fabamwo's Circular has set a deadline of 31 December 2012 for MFBs to comply with this guideline. And now that the deadline is over, its time for CBN to come into action.

What do you think about this initiative by CBN? Is it in the good interest of the nation that is aiming for financial inclusion by 2020? Or do you think that the regulations need to be more MFB-friendly? We would like to hear your comments.

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