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NMfB may out-crowd Tier 2 microfinance banks if…—Expert

Though the Central Bank of Nigeria (CBN) seems to be working to protect the continued existence of microfinance banks as part of drive to deepen financial inclusion and support for SMEs, there are fears that the planned emergence of National Microfinance Bank (NMfB) will weaken the activities of both Tier 1 and 2 sooner on takeoff.
In an interview, a former old generation banker and board member of a Tier 2 MfB, Hassan Musa said “Though the new revised recapitalization figure of N50m can be said to be within reach, our fear is that the advent of NMfB may push Tier 2 MfBs out of business if it truly goes nationwide in all local government area as planned”.
“We are ready to comply with the new capital base, but can all remain in business when NMfB comes on stream?
In his further submission, he noted that “We are very much concerned on how the outlook of private sector driven MfBs will compete with NMfB because we cannot be able to be in the same market with a national bank that can give out facilities at single digit with the nature of the economy.
He said for the apex bank to float a national MfB and further introduced a Tier-based system for unit microfinance banks in the country, growth in the sub sector may be negatively skewed going forward. The different categories are the unit, state and national operators.
In a circular to all microfinance banks on the ‘Review of minimum capital requirement for microfinance banks in Nigeria,’ the CBN changed the stand it had earlier taken to the microfinance banks on October 22, 2018.
The CBN stated that the Tier 2 unit microfinance banks must have a minimum capital of N50m, while Tier 1 would maintain the N200m minimum capital introduced for unit microfinance banks in October 2018.
However, the latest circular noted further that “The Central Bank of Nigeria revised the categories of microfinance banks with a view to ensuring continued operations of microfinance banks in the rural, unbanked and underbanked areas of the economy.
“The unit microfinance banks shall comprise two Tiers: Tier 1 unit microfinance bank which shall operate in the urban and high-density banked areas of the society; and Tier 2 unit microfinance banks which shall operate only in the rural, unbanked or underbanked areas.” However, in line with the above, the CBN averred that the minimum capital requirement for the categories of microfinance banks had been revised; saying Tier 1 unit microfinance banks must meet a N100m capital threshold by April 2020 and N200m by April 2021.
Also, Tier 2 unit microfinance banks, it added, must meet a N35m capital threshold by April 2020 and N50m by April 2021. The CBN stated that state microfinance banks must increase their capital to N500m by April 2020 and N1bn by April 2021.