CBN to close down unhealthy MFBs in Q3


By Segun Olatunji, Kaduna   Wednesday, 21 Jul 2010    


The Central Bank of Nigeria is set to announce major policy reforms that will drastically reduce the number of microfinance banks operating in the country.Criticisms have continued to trail the operation of the MFBs, many of which are accused of lending to big firms and moneybags and engaging in other illegal transactions.


A number of MFBs are already fizzling out due to drying capital.But the Governor, CBN, Mr. Lamido Sanusi, who spoke at the First Town Hall Meeting in Kaduna on Tuesday, said that the policy reforms to sanitise the MFBs’ operations would come into effect in the third quarter of the year.


Sanusi also announced that CBN would sanction non-performing microfinance banks and close down those found to be terminally distressed.The CBN governor expressed regret that the over 900 existing MFBs in the country had not made the desired impact due to a number of reasons including lack of understanding of the concept and methodology of delivery of microfinance by the operators.


Other reasons, according to him are concentration of MFBs in the major cities rather than the rural areas where they are really needed, with the attendant high running cost implications and the impact of the global financial crisis leading to drying up of credit lines, competition and increased credit risk.Sanusi also said, undercapitalisation, huge non-performing risk assets, poor corporate governance, huge investment in fixed assets, weak capacity, insider related abuses, poor asset quality and management information system were responsible for the poor performance.


He disclosed that the CBN recently completed a comprehensive target examination of all the microfinance banks in the country, adding that this would form the basis for appropriate regulatory action in the near future.The CBN governor said, “The Central Bank has carried out a comprehensive review of the microfinance policy and regulatory framework in order to deepen the sector’s operations and ensure much more robust regulatory environment. We will announce major policy reforms in microfinance during the third quarter of the year.”


Sanusi, also expressed the intention of the CBN to abolish the current universal banking model and return to the full intents of the Banks and other Financial Institutions Act which separates commercial banking activity from merchant or investment banking.He, however, vowed that such politicians linked to the collapse of some of the nation’s commercial banks would not go scot-free inspite of their connections in the corridors of power.The CBN boss stated that they would be made to cough out the money borrowed from the banks at the appropriate time.





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