Introduction

In May 2023, the Central Bank of Nigeria (CBN) revoked the operating licences of some Microfinance Banks, Finance Companies and Primary Mortgage Banks, citing inactivity, insolvency, failure to render returns, closed shop, and non-compliance with regulation.

Why does this concern you?

As a founder, VC, or investor in digital banks or the general banking industry, it is essential to keep your investment secure and safe from regulatory penalties that could have been easily avoided. Banking is a heavily regulated industry and penalties for non-compliance can cost investors time, money, and sometimes your entire investment.

Why does the CBN revoke Microfinance Bank Licences?

Regulatory compliance is imperative for fintech companies and microfinance banks operating in Nigeria to retain their license. The CBN is empowered to revoke licenses of financial institutions that fail to adhere to its guidelines and it invokes its powers to revoke licences when there is a breach of its guidelines. Particularly, by section 23.0 of the CBN Guidelines for the Regulation and Supervision of Microfinance Banks in Nigeria, a Microfinance Bank licence can be revoked when:

1. The Microfinance Bank engages in activities outside the permissible scope of its licence

2. There is technical insolvency

3. There is a failure to redeem matured obligations for a consecutive period of 3 (three) months

4. There is an incident of multiple ownership/using proxies to obtain a licence to operate as a Microfinance Bank.

How do you avoid the revocation of your Licence as a Fintech Company in Nigeria

To maintain operational approval, microfinance banks must refrain from the above actions and implement robust compliance measures. Some effective strategies include:

1. Understanding license removal criteria to prevent common pitfalls

2. Establishing strong governance, risk management and internal controls

3. Compliance with capitalization and liquidity standards

4. Implementing responsible lending practices and risk monitoring

5. Timely resolution of regulator findings and concerns

6. Fostering transparency and cooperation with the CBN

7. Adhering to Know-Your-Customer and AML regulations

8. Developing a culture of ongoing self-assessment

Failure to comply can also attract monetary penalties from N10,000 to N2,000,000 daily. Overall, proactive measures and an ethical culture help create sustainable businesses that safely serve the financial needs of communities.

CONCLUSION

Ensuring ongoing regulatory compliance is crucial for microfinance banks to maintain their operating licenses long-term. While internal controls and self-assessments are important, independent compliance audits conducted by expert legal counsel provide additional assurance and peace of mind.

Engaging experienced banking lawyers to periodically audit documentation, policies, processes and activities helps identify any emerging risks of non-compliance early. Auditors can then work with management to implement corrective actions before issues escalate. Their guidance establishes robust compliance frameworks customized to each institution's operations.

In summary, microfinance banks would be well-served partnering regularly with compliance legal counsel. Doing so significantly mitigates risks of authorization removal by ensuring adherence to principles and guidelines for sustainable operations and public trust.