MICROFINANCE POLICY REGULATORY AND …

1 CENTRAL BANK OF nigeria MICROFINANCE POLICY FRAMEWORK FOR nigeria REVISED APRIL 29, 2011 TABLE OF CONTENTS LIST OF ..3 4 OVERVIEW OF MICROFINANCE ACTIVITIES (2006 2010) .. JUSTIFICATION FOR MICROFINANCE POLICY .. 7 Weak Institutional 7 Absence of Technological Weak Capital 7 3. 4 The Existence of a Huge Un-Served . 7 3. 5 Poor Banking Culture and Low level of Financial 8 3. 6 Economic Empowerment of the Poor .. 83. 7 The Need for Increased Savings 8 3. 8 The Increasing Interest of Local and International Investors in 9 3. 9 Urban Bias in Banking Services .. THE MICROFINANCE 9 POLICY POLICY 10 POLICY Strategies .. Licensing and Supervision .. Continuous Professional Development .. Savings Mobilisation .. Government Participation .. NGO-based MICROFINANCE Institutions.

2 Collaboration with Development Partners .. Definition of Stakeholders Role .. Submission of Disaggregated Data .. Institutional MICROFINANCE POLICY Measures .. MICROFINANCE Bank Categorization .. Ownership of MICROFINANCE Banks .. PARTICIPATION OF EXISTING FINANCIAL INSTITUTIONS IN MICROFINANCE Deposit Money Banks: .. 13 MICROFINANCE POLICY Framework for nigeria Page 2 Non-Governmental Organization - Micro Finance Institutions (NGO-MFIs): .. Apex Association of MICROFINANCE Institutions/Banks: .. FRAMEWORK FOR THE SUPERVISION OF MICROFINANCE SUB-SECTOR .. Licensing and Supervision of MICROFINANCE Banks .. Revised REGULATORY and Supervisory Guidelines for MICROFINANCE .. Banks .. Minimum Operational Standards/Template for MICROFINANCE . Banks in nigeria .

3 Establishment of a National MICROFINANCE POLICY Consultative Committee .. Credit Reference Bureau .. Rating Agency .. Deposit Insurance Scheme .. Capacity Building Programme .. 16 MICROFINANCE Certification 16 Staff Development 16 MICROFINANCE Development Fund and Capacity 16 Apex Association and Capacity 16 Linkage Programme .. Establishment of MICROFINANCE Development Fund (MDF) .. Prudential Requirements .. Disclosure of Sources of Funds .. Corporate Governance for MICROFINANCE Institutions .. Apex Association of MICROFINANCE Institutions/Banks .. 17 REGULATORY INCENTIVES FOR THE ROLES AND RESPONSIBILITIES OF STAKEHOLDERS .. Government .. Central Bank of nigeria (CBN) .. Apex Associations of MICROFINANCE Institutions and Banks .. 198.

4 4 Public Sector Poverty Alleviation Agencies .. 198. 5 Donor Agencies and Development Partners .. CONCLUSION .. 20 MICROFINANCE POLICY Framework for nigeria Page 3 LIST OF ACRONYMS ACGS BOA Agricultural Credit Guarantee Scheme Bank of Agriculture BOFIA BOI Banks and Other Financial Institutions Act Bank of Industry CAC Corporate Affairs Commission CAMA Companies and Allied Matters Act CBN Central Bank of nigeria CBs Community Banks CSOs Civil Society Organisations DFIs Development Finance Institutions DMB Deposit Money Bank EFInA Enhanced Financial Innovation and Access FCT Federal Capital Territory FIRS Federal Internal Revenue Service FEAP Family Economic Advancement Programme GDP Gross Domestic Product IDP Interest Drawback Programme IT Information Technology LGA Local Government Area MCPE Mandatory Continuing Professional Education MDAs Ministries.

5 Departments and Agencies MDF MICROFINANCE Development Fund MFB MICROFINANCE Bank MFIs MICROFINANCE Institutions MCP MICROFINANCE Certification Programme MSMEs Micro, Small and Medium Enterprises NAIC Nigerian Agricultural Insurance Corporation NAPEP National Poverty Eradication Programme NDE National Directorate of Employment NDIC Nigerian Deposit Insurance Corporation NEEDS National Economic Empowerment and Development Strategy NGO Non-Governmental Organization NGO-MFIs Non-Governmental Organization- MICROFINANCE Institutions NMFPCC National MICROFINANCE POLICY Consultative Committee PBN Peoples Bank of nigeria RoSCAs Rotating Savings and Credit Associations RRF Refinancing and Rediscounting Facility SHGs Self-Help Groups SMEEIS Small and Medium Enterprises Equity Investment Scheme VAT Value Added Tax SMEDAN Small and Medium Enterprises Development Agency of nigeria MICROFINANCE POLICY Framework for nigeria Page 4 INTRODUCTION In December 2005.

6 The Central Bank of nigeria (CBN) introduced a MICROFINANCE POLICY Framework to enhance the access of micro- entrepreneurs and low income households to financial services required to expand and modernize their operations in order to contribute to rapid economic growth. The rationale was that no inclusive growth can be achieved without improving access of this segment of the economic strata to factors of production, especially financial services. The basis of this bold initiative in 2005 is still valid. With the benefit of experience spanning over five years of operating the MICROFINANCE POLICY , the CBN believes that a review of the POLICY to reflect lessons from experience, global economic trends and the envisioned future for small business development in nigeria has become auspicious.

7 MICROFINANCE services refer to loans, deposits, insurance, fund transfer and other ancillary non-financial products targeted at low-income clients. Three features distinguish MICROFINANCE from other formal financial products: (i) smallness of loans and savings, (ii) absence or reduced emphasis on collateral, and (iii) simplicity of operations. Before the emergence of MICROFINANCE Banks (MFBs) under the MICROFINANCE POLICY , the people that were un served or under-served by formal financial institutions usually found succour in non-governmental organization- MICROFINANCE institutions (NGO-MFIs), moneylenders, friends, relatives, credit unions, etc. These informal sources of funds have helped to partially fill a critical void, in spite of the fact that their activities were neither regulated nor supervised by the CBN.

8 This revised POLICY framework continues to take cognisance of this category of institutions, which have now become key players in the Nigerian MICROFINANCE landscape. However, more emphasis would be placed on MFBs because they are under the REGULATORY and supervisory purview of the CBN. The envisioned MICROFINANCE sub-sector under the POLICY regime recognises the existence of informal institutions and provides for their mainstreaming into the national financial system. The POLICY also seeks to harmonize operating standards and provide a strategic platform for the evolution of MICROFINANCE institutions particularly MFBs. Existing non-deposit taking service providers, which continue to operate outside the purview of regulation and supervision of the CBN, would be MICROFINANCE POLICY Framework for nigeria Page 5 encouraged to make periodic returns on their operations for statistical purposes to the CBN.

9 This document therefore, presents a revised National MICROFINANCE POLICY Framework for nigeria that would enhance the provision of diversified MICROFINANCE services on a sustainable basis for the economically active poor and low income households. It also provides appropriate machinery for tracking the activities of development partners and other non-bank service providers in the MICROFINANCE sub-sector of the Nigerian economy. This revised POLICY is prepared in exercise of the powers conferred on the CBN by the provisions of Section 33 (1) (b) of the CBN Act No. 7 of 2007 and in pursuance of the provisions of Sections 56-60 (a) of the Banks and Other Financial Institutions Act [BOFIA] No. 25 of 1991 [as amended]. It should be read in conjunction with the MFB Operating Template and the revised REGULATORY and Supervisory Guidelines for MICROFINANCE Banks (MFBs) in nigeria .

10 OVERVIEW OF MICROFINANCE ACTIVITIES (2006 2010) The MICROFINANCE industry in nigeria had been confronted by numerous challenges since the launch of the MICROFINANCE POLICY Framework in December, 2005. Coming on the heels of the banking sector consolidation, many of thos e adversely affected found their way into MICROFINANCE . Thus, a significant number of the newly licensed MFBs were established or operated like mini -commercial banks . Also, t he erstwhile community banks (CBs) that converted to MFBs did not fare any better. An assessment of the MICROFINANCE sub-sector, following the launching of the POLICY however revealed some improvements. These include increased awareness among stakeholders such as governments, REGULATORY authorities, investors, development partners, financial institutions and technical assistance providers on MICROFINANCE .