Considering the rift between traditional banks and fintech, the Nigerian fintech industry can now be likened to the popular saying “innovation moves faster than regulation”. Although regulation is moving fast but not in the direction that innovation wants as CBN will be making an amendment on the fintech regulations in Nigeria – soon.
In addition to the regulators’ plans to roll out the new licence regime for payments companies, the Central Bank of Nigeria (CBN) is changing the licencing guidelines for microfinance banks (MFBs) and this regulation threatens most digital fintech startups.
The regulator stipulated new minimum capital requirements for MFBs and has split the categories of licences into four. The new guideline will go into effect by April 1 and will have huge implications for fintech startups in the country.
Here is why this would affect fintech startups…
A microfinance bank licence is different from a regular commercial bank licence and fintechs are snapping up these MFB licenses as it’s cheaper, affordable and more flexible.
Microfinance banks are conceived as poverty reduction and financial inclusion schemes where customers around rural (and partly urban areas) can access banking opportunities in an informal. So, with an MFB licence, holders can offer banking services like accepting deposits, providing loans and making fund transfers.
But these licenses do not support international fund transfers and this is what many fintech startups would like to work with. At the moment, MFBs are split into three categories by capital requirements and geographical scope.
- The National MFBs can operate anywhere in the country with a licence fee ₦1 million ($2,715), but require a minimum capital of ₦2 billion ($5.43 million).
- The State MFB license allows holders to operate with one state and even though there’s a ₦100 million ($271,455) capital requirement attached, the actual licence fee is ₦250,000 ($679).
- The Unit MFB is third and the most limited. Holders can only operate out of one office, but it does come with a ₦20 million ($54,291) capital requirement.