In a recent development, the Central Bank of Nigeria (CBN) revoked the licenses of 132 microfinance banks and other financial institutions. Read the full list here. In this blog post, we will delve into the implications of the license revocation for depositors and shed light on what it means for their overall financial stability.
On Monday, May 22, citing the Banks and Other Financial Institutions Act (BOFIA), 2020, the Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, made a significant announcement. The operating licenses of more than 100 microfinance banks and other financial institutions were ordered to be revoked.
Emefiele explained that these institutions had ceased to conduct the type of business for which their licenses were issued within Nigeria.
Expectedly, the action by the CBN generated a myriad of reactions from experts and observers.
One such reaction is from Paul Oyewusi, a performance advocate who is passionate about growing African businesses.
In his opinion, while the revocation may be sad and painful for affected businesses, it also shows that the CBN is concerned about Nigerian depositors to have taken such action in order to ensure the safety and soundness of the Nigerian financial system.
“Personally, I believe the revocation of these licenses will help to protect depositors and other stakeholders in the financial system, and this is also a lesson to the employee. I mean, when you choose to work in an establishment with a set job description and set performance standards for you, it is essential that your actions are guided solely by these standards and not something else,” he wrote in an opinion piece.
Another stakeholder, Hilda O who consults for entrepreneurs and startup founders in emerging businesses also opined that regulatory compliance is non-negotiable when it comes to the business environment.
“The cost of compliance is always less than having to start afresh,” she added.
Implications for depositors
The decision by the CBN to revoke the licences of MFBs and other financial institutions will naturally come with implications for depositors which include:
1. Access to Funds
One immediate concern for depositors is the potential disruption in accessing their funds. With the license revocation, the affected institutions may face challenges in fulfilling their obligations, including providing withdrawal services to depositors. This can lead to delays or difficulties in accessing funds, causing inconvenience and financial strain for depositors who rely on these institutions for their banking needs.
2. Possible Loss of Funds
Depending on the circumstances surrounding the license revocation, depositors may face the risk of losing some or all of their funds. If the affected institutions have experienced financial instability or mismanagement, depositors could potentially face losses. This can be particularly distressing, especially for depositors who have entrusted significant amounts of money to these institutions.
3. Transfer of Accounts
Another implication for depositors is the potential need to transfer their accounts to alternative banking institutions. This process may involve paperwork, verification procedures, and coordination between the affected institution and the new bank. Depositors could face delays or complications during the transition, which may impact their ability to conduct financial transactions smoothly.
What do if you’re affected
1. Contact the Microfinance Bank
Initially, you should reach out to the affected MFB to gather information about the situation and inquire about the status of your deposits. It is important to communicate with the bank's representatives to understand the next steps and the timeframe for deposit recovery.
2. Consult the Central Bank of Nigeria (CBN)
You can contact the CBN, the regulatory authority responsible for overseeing MFBs, to seek guidance and support in recovering your funds. The CBN can provide information on the process, requirements, and timelines for deposit recovery. They can also direct you to any specific actions or documentation needed.
3. Follow Official Communications
Stay updated on official communications from the CBN or other regulatory bodies regarding the license revocation. This can include press releases, notifications, or circulars that outline the procedures and options available for you to recover your funds. It is important to rely on reliable and authorized sources of information to avoid falling victim to scams or misinformation.
4. Submit Required Documentation
Deposit recovery typically involves providing necessary documentation to verify ownership and the amount of funds held in the affected MFB. You should prepare and submit the required documents promptly, as requested by the bank or regulatory authorities. These documents may include valid identification, account statements, deposit receipts, or any other relevant proof of ownership.
5. Engage Legal Counsel if Necessary
In cases where deposit recovery efforts encounter challenges or face delays, you may consider seeking legal counsel. Legal professionals experienced in banking and financial matters can provide guidance, assess legal options, and represent your interests in any legal proceedings.
6. Explore Deposit Insurance Coverage
Deposit insurance schemes, such as the Nigerian Deposit Insurance Corporation (NDIC), provide protection for depositors' funds in the event of bank failure or license revocation. You should determine if your deposits are covered by such schemes and familiarize yourself with the coverage limits and claims processes. If eligible, you can file claims for deposit insurance compensation.
7. Monitor Regulatory Updates
Stay vigilant and monitor updates and notifications from the CBN and other regulatory authorities regarding the progress of the deposit recovery process. Regularly check official websites, subscribe to relevant newsletters or notifications, and maintain open lines of communication with the regulatory bodies to stay informed about any developments or additional requirements.
How to protect your business from the fallout of MFBs license revocation
Many businesses that rely on MFBs for loans and other financial services may have been affected by the revocation of the licenses.
Whether you find yourself in that category or not, here are some tips on how to protect yourself from the fallout of MFBs license revocation:
● Diversify your funding sources
Don't rely on MFBs as your only source of funding. Consider other options, such as commercial banks, government agencies, or crowdfunding platforms.
● Build up your cash reserves
Having a healthy cash reserve will give you a cushion in case you experience disruptions to your funding.
● Be prepared to adjust your business plans
The revocation of MFBs licenses may force you to make changes to your business plans. Be prepared to adjust your operations, marketing, and sales strategies as needed.
● Stay informed
Monitor the situation closely and stay up to date on the latest developments. This will help you make informed decisions about your business.
Tips for getting a small business loan.
● Having a good business plan
A well-written business plan will show lenders that you have a solid business idea and that you are serious about your business.
● Getting good credit
Good credit will make you more attractive to lenders. If you have bad credit, you may still be able to get a loan, but you may have to pay a higher interest rate.
● Be prepared to provide collateral
Collateral is an asset that you can pledge to the lender in case you default on the loan. Collateral can make you more attractive to lenders because it reduces their risk.
● Shop around
Compare the different loan options available before you choose one. This will help you get the best deal possible. Visit nairaCompare now to compare business loan offers from multiple accredited lenders, evaluate terms and rates, and make a well-informed decision that aligns with your business goals!