The clock is ticking for the microfinance bank sub-sector to raise a total of N6.25 billion recapitalisation requirement before the end of this month, being the deadline given by the Central Bank of Nigeria (CBN) for the exercise.
A breakdown of the recapitalisation requirement is as follows: tier 2 (rural) licence microfinance banks are expected to pay N50 million as minimum capital requirement, tier 1 MFBs (urban) are to pay N200 million as minimum capital requirement, N1 billion for State licence MFBs and N5 billion for National licence MFBs.
However, the CBN has given the operators who are not able to meet up with the recapitalisation exercise to merge, downsize or sell off.
“30 percent of MFBs would meet the deadline of recapitalisation. But another option is to scale down if you cannot meet up. If you cannot meet up as tier 1 which is N200m, you drop to Tier 2 which is N50m and as State MFB, if you cannot meet up with the new recapitalisation of N1bn; you drop to N200m as Tier 1. Same applies to national MFBs. As we speak some MFBs are operating with less capital adequacy. And many factors are responsible for that. It is not a do or die affair, just move down if you cannot meet up,” one of the operators based in Lagos told BusinessDay.
The operator noted that the CBN at a recent meeting insisted that there is no going back on the recapitalisation deadline, this month.
In view of this many operators are opting for downscaling of their business in order to meet up and keep business going. “Some of the managing directors of microfinance banks who sat beside me at a recent meeting said they will scale down as they can’t make it,” an operator said.
In consideration of the impact of the COVID-19 pandemic on economic activities in the country, the Nigeria’s Central Bank in 2020 revised the deadline for compliance with the minimum capital requirement for microfinance banks by one year.
Consequently, MFBs operating in rural, unbanked and under banked areas (Tier 2) are expected meet the N35 million capital threshold by April 2021 and N50 million by April 2022:
MFBs operating in urban and high density banked areas (Tier 1) are expected to meet the N100 million capital threshold by April 2021 and N200 million by April 2022;
State licenced MFBs are to increase their capital to N500 million by April 2021 and N1 billion by April 2022; and
National MFBs are expected to meet minimum capital of N3.5 billion capital by April 2021 and N65 billion by April 2022.
The Nigeria Deposit Insurance Corporation (NDIC) said in October 2021 that there would be strong tightening in the Microfinance bank sub-sector after recapitalisation exercise.
Veronica Ogbo-Ikwe, director, Special Insured Institutions Department (SIID), said there had been good response on recapitalisation from the MFBs.
Ogbo-Ikwe encouraged those that have not met their capital requirements to either merge or relocate to another license category or go into acquisition.