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CBN And The International Finance Corporation Charge Microfinance Banks To Embrace Self-Regulation

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Nigeria’s apex bank, the Central Bank of Nigeria (CBN) in collaboration with the International Finance Corporation (IFC) have admonished Microfinance Banks (MFBs) in Nigeria to embrace self-regulation and alliance in order to boost performance and sustainability of the financial services sector.

This is coming, just as the National Association of Microfinance Banks has called for standardized performance procedures and requirements for players in the subsector, during the 5th edition of the annual symposium of the Nigerian Microfinance Platform, held in Ibadan, with the theme “Self-Regulation for Sustainability and Development of the Microfinance sector”.

Self-Regulation To Help Drive Performance In The Sector.

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The Deputy Governor, Financial Sector Surveillance of the Central Bank of Nigeria, Mrs. Aisha Ahmad, who was represented by Mrs. Tokunbo Martins, Director, Other Financial Institutions Supervision Department of the apex bank, in her keynote address at the symposium, stressed the need for self-regulation in the Microfinance bank subsector.

She stated that a comprehensive oversight system was necessary for effective supervision of the activities of microfinance banks.

We believe that the effectiveness of self-regulation in   driving performance of the microfinance sector depends on an effective and efficient mechanism for addressing non-compliance, standardized performance measures driven by the best performing operators in the microfinance sector. It is therefore important that the umbrella associations set the tone right from the onset and clearly communicate their expectations which should be congruent with the regulators’ expectations for the microfinance industry,” she said.

The Country Director of IFC, Mr. Eme Essien, while speaking at the event, noted that while self- regulation was important, it would not happen instantly but slowly as operators and regulators work together. She, however, emphasized the need for consolidation in the subsector, stressing that most of the MFBs in the country were small and their viability is delicate.

“There must be pursuit of consolidation in the sector. We hope that the smaller banks will look for partnership with other larger ones. You can join forces, grow your network in that way, expand your offerings in that way, grow the credibility of the sector in that way and you can build trust among customers” Essien stated.

He further said that “In fact, overtime we see a very significant benefit in combining businesses.  This will also reduce the pressure on the CBN, but broadly it will lead to a high level of sustainability in the sector so that the microfinance sector really has its place in driving financial inclusion in Nigeria.”

Restructuring The Compliance Indicators In The Sector.

President of the National Association of Microfinance Banks, Mr. Rogers Nwoke, identified self-regulation as one of the cardinal goals of the association since its inauguration, adding that there was huge potential for self -regulation in the sector.

He further stated that self-regulation would also help restructure the compliance pointers according to the bank’s status, size and risk framework. He, however said that it would grossly cut cost of statutory regulation and help promote consumer protection.

The CBN would also have to make MFB ratings a condition to receiving intervention funds and other incentives, and allow for peer-group differentiation, use of external validation, production of scores and penalties for non-compliance,” Essien stated.

Microfinance Banks In Nigeria.

A Microfinance bank (MFB) is a financial service company licensed by the Central Bank of Nigeria (CBN) to conduct the business of providing micro-finance services such as loans, savings, domestic funds transfer, and other financial services that are needed by the economically active poor, micro, small and medium businesses.

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