CBN: Major regulatory shakeup in microfinance banking sector

By Philippine Duru

philippineobetoduru@gmail.com

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The Central Bank of Nigeria (CBN) has revoked the operating licences of 46 microfinance banks (MFBs) in a fresh move to strengthen regulatory oversight, promote financial system stability, and improve confidence in Nigeria’s microfinance banking sector.

The action, which forms part of the apex bank’s ongoing supervisory and reform efforts, reflects its determination to ensure that only financially sound and well-governed institutions continue to operate within the country’s financial system.

Industry stakeholders say the latest licence revocations underscore the CBN’s commitment to enforcing compliance with prudential regulations and sanitising the microfinance banking landscape, which has witnessed rapid expansion over the years but continues to face challenges relating to weak corporate governance, inadequate capitalization, poor risk management, and non-compliance with regulatory requirements.

The affected institutions reportedly failed to meet various regulatory obligations, including maintaining minimum capital requirements, complying with prudential guidelines, submitting statutory returns, and adhering to operational standards prescribed by the apex bank.

The revocation was carried out in accordance with the provisions of the Banks and Other Financial Institutions Act (BOFIA) 2020, which empowers the CBN to withdraw the licences of financial institutions that become insolvent, cease operations, fail to comply with regulatory directives, or conduct business in a manner considered detrimental to depositors and the wider financial system.

The latest action forms part of broader reforms by the CBN aimed at enhancing the resilience of Nigeria’s banking industry and protecting depositors’ funds.

Financial analysts noted that while the revocation may initially affect customers of the affected institutions, decisive regulatory intervention is necessary to preserve public confidence in the financial system and prevent systemic risks from spreading to healthier institutions.

According to experts, prompt regulatory action helps eliminate weak operators whose continued existence could undermine financial inclusion efforts and expose depositors to unnecessary risks.

The CBN has consistently maintained that strict supervision remains essential for building a safe, efficient, and transparent financial system capable of supporting sustainable economic growth.

Nigeria’s microfinance banking industry plays a critical role in expanding access to financial services for low-income households, smallholder farmers, artisans, traders, and micro, small and medium-sized enterprises (MSMEs).

However, the sector has continued to grapple with numerous operational challenges, including rising inflation, exchange rate volatility, increasing operating costs, weak internal controls, loan defaults, cybersecurity risks, and limited access to long-term funding.

These pressures have placed significant strain on the financial health of many smaller operators, making regulatory compliance increasingly difficult.

Analysts believe stronger institutions with adequate capital and sound governance structures are better positioned to withstand economic shocks and continue providing financial services to underserved communities.

Customers of the affected microfinance banks are expected to receive further guidance from the relevant regulatory authorities regarding the resolution process and the treatment of deposits and other liabilities.

Financial experts have advised depositors to verify the status of their financial institutions through official CBN publications and maintain relationships with licensed and adequately regulated banks.

They also noted that the Nigeria Deposit Insurance Corporation (NDIC), where applicable, would work alongside the CBN in resolving failed financial institutions and protecting insured depositors in accordance with existing laws.

The licence revocations come amid broader reforms across Nigeria’s financial sector, including ongoing bank recapitalisation, stricter corporate governance requirements, enhanced risk-based supervision, and measures aimed at strengthening financial stability.

The CBN has repeatedly stated that maintaining a resilient banking sector remains critical to supporting economic growth, improving financial inclusion, and restoring investor confidence.

Industry observers expect the apex bank to sustain rigorous monitoring of licensed financial institutions while encouraging consolidation among weaker operators to build stronger and more resilient microfinance banks capable of supporting Nigeria’s growing economy.

The latest regulatory action sends a clear signal that the CBN will continue to enforce compliance with banking regulations and hold financial institutions accountable for meeting the standards required to safeguard depositors and preserve the integrity of Nigeria’s financial system.