Taxes Levied On Micro, Small And Medium Enterprises (SMEs)

NEWS LETTER ON THE REVOCATION OF LICENCES OF MICROFINANCE BANKS,FINANCE COMPANIES AND MORTGAGE BANKS; A REVEIW OF THE APEX BODY'S DECISION AND ITS IMPLICATION

MICROFINANCE BANK

Microfinance is a category of financial services targeting individuals and small businesses who lack access to conventional banking and related services. It is crucial to understand the different categories of microfinance banks (MFBs) and the corresponding requirements set by the Central Bank of Nigeria. The establishment of a microfinance bank in Nigeria is regulated by the CBN, and compliance with its principles is mandatory for all financial institutions operating in the country

In a recent development, the Central Bank of Nigeria (CBN) has taken a decisive action by revoking the operating licenses of 132 microfinance banks, four primary mortgage banks, and three finance companies across the country. The revocation exercise was officially announced in the Federal Government's gazette, specifically in No. 93, volume 110, May 22, 2023 edition, which was published on the Central Bank of Nigeria's website. The revocation of these financial institutions' licenses was primarily attributed to their failure to engage in the type of business for which their licenses were issued within Nigeria for a continuous period of six months. Additionally, they were accused of not fulfilling the conditions under which their licenses were granted or failing to comply with the obligations imposed by the Central Bank of Nigeria as per the provisions of the Banks and Other Financial Institutions Act (BOFIA) 2020, Act No. 5

There are three major categories of microfinance bank licenses in Nigeria, each with specific financial requirements for setup:

1. Unit Microfinance Bank: This category refers to a microfinance bank authorized to operate in a single location without the possibility of opening additional branches. The minimum capital requirement for this category is set at N200,000,000 (Two Hundred Million Naira).

2. State Microfinance Bank: A state microfinance bank is granted authorization for operation within a single state or the Federal Capital Territory (FCT). The CBN allows the opening of multiple branches within that particular state or the FCT, with the condition that no more than two branches can be established within the same Local Government Area (LGA), unless the bank has established at least one branch or cash center in every LGA of the state. The minimum capital requirement for this category is N1,000,000,000 (One Billion Naira).

3. National Microfinance Bank: This category encompasses microfinance banks authorized to operate in more than one state, including the Federal Capital Territory (FCT). The CBN restricts their operations to a maximum of ten branches. The minimum capital requirement for this category is N5,000,000,000 (Five Billion Naira).

It is important to note that the minimum capital requirements for these three categories are subject to periodic review by the Central Bank of Nigeria.

The grounds for revoking a microfinance bank s license can include several factors:

1. Ceasing to carry on the type of banking business for which the license was issued in Nigeria for a continuous period of six months or a cumulative period of six months within twelve months
2. Going into liquidation.
3. Failing to comply with the conditions under which the license was granted.
4. Having insufficient assets to meet liabilities.
5. Conducting business in an unsound manner or engaging in unsafe practices.
6. Being involved in circumstances or actions that pose a threat to financial stability.
7. Failing to comply with obligations imposed by the BOFIA, the Central Bank of Nigeria Act, or other relevant rules, regulations, guidelines, or directives.
8. Being critically undercapitalized with a capital adequacy ratio below the prudential minimum prescribed by the CBN or any other ratio set by the CBN.
9. Failing to commence banking operations within twelve months after the license was granted.
10. Failing to comply with specific provisions of the BOFIA.

Apart from microfinance banks, the revocation exercise also affected finance companies;

FINANCE COMPANY

A Finance company is a person or company licensed to engage in finance company business, which involves providing financial services to consumers, industrial, commercial, or agricultural enterprises. These services can include funds management, equipment leasing, hire purchase, debts factoring and securitization, project financing or consultancy, debt administration, LPO financing, export financing, financial consultancy, and issuing of vouchers, coupons, credit cards, and token stamps. The Central Bank of Nigeria may designate additional businesses from time to time.

The grounds for revoking a Finance company s license can include the following:

1. Submission of false information/data during or after the processing of the license application.
2. Engaging in functions/activities outside the scope of the specified license.
3. Persistent failure to comply with requests for information/data from the CBN.
4. Engaging in activities detrimental to the Nigerian economy.
5. Failure to redeem matured obligations to customers.
6. Unauthorized shop closure.
7. Failure to comply with any directives issued by the CBN.
8. Failure to renew the operating license within the specified period.
9. Any other acts that, in the opinion of the CBN, constitute a violation or serious default.

In addition to microfinance banks and finance companies, the revocation exercise extended to primary mortgage banks (PMBs).

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