Microfinance Bank Revocations in Nigeria: What You Need to Know

Microfinance Bank Revocations in Nigeria: What You Need to Know

10 Key Takeaways from the Blog Post

The Central Bank of Nigeria (CBN) revoked the operating licenses of 132 microfinance banks in May 2023.The reasons for the revocation included inactivity, insolvency, failing to render returns, closing shop, or not providing the type of banking services for which they were licensed for more than six months.
The Nigerian Deposit Insurance Corporation (NDIC) is compensating depositors of the affected banks, up to a maximum of ₦200,000 per account.Customers need to verify their claims to receive the compensation.
Customers with deposits exceeding ₦200,000 will need to wait for a longer resolution.The NDIC will attempt to recover funds through various methods before distributing any remaining funds to depositors as liquidation dividends.
Some of the revoked licenses may be reinstated if the banks can demonstrate financial health and compliance with regulations.There is also a risk of permanent closure through liquidation.
Two prominent affected banks are Eyowo Microfinance Bank and Purple Microfinance Bank.Eyowo is currently challenging the revocation and attempting to resume operations.
The NDIC encourages affected customers to stay informed by checking their official website for updates and claim procedures.Customers can visit the NDIC website at https://ndic.gov.ng/: https://ndic.gov.ng/ for more information.

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In a significant development, the Nigerian Deposit Insurance Corporation (NDIC) has initiated compensations for customers affected by the revocation of operating licenses for 132 microfinance banks by the Central Bank of Nigeria (CBN) in May 2023. Recent NDIC notices from May and August 2023 shed light on the compensation process, revealing that affected customers stand to receive a maximum payment of ₦200,000 upon providing proof of their deposits.

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The CBN’s decision to revoke licenses was rooted in various factors, including inactivity, insolvency, failure to submit returns, closure, or the failure to provide licensed banking services for over six months. However, specific reasons for each affected bank were not explicitly provided by the apex bank.

Among the notable casualties of the CBN’s action were Eyowo Microfinance Bank, supported by fintech giant Softcom, and Purple Microfinance Bank. An NDIC agent, speaking on condition of anonymity, mentioned that some banks are disputing the license revocation and are actively pursuing avenues to regain their licenses, even considering rebranding.

Eyowo, in particular, has been in talks with the CBN to restore its license and resume operations. A short-lived partnership with Providus Bank in June 2023 allowed certain Eyowo customers to access their funds, although this arrangement became inaccessible weeks later.

For customers with deposits exceeding ₦200,000, the situation becomes more intricate. Some affected banks are engaging with these customers, assuring them of efforts to facilitate access to their deposits. In cases where the banks are unable to fulfill these promises, customers can turn to the NDIC.

The NDIC, as a government-backed insurer, will assess the assets of the revoked banks, selling whatever is possible to recover funds. This includes liquidating loans and selling investments held by these banks. After the liquidation process, the NDIC plans to pay depositors with amounts exceeding ₦200,000 a “liquidation dividend.”

Despite some banks seeking to reinstate their licenses, there is a looming risk of unsuccessful attempts. If these banks fail to convince the CBN of their financial health, the NDIC may resort to liquidating their assets as a last resort. An NDIC official emphasized that alternatives are explored, such as urging shareholders to infuse capital or negotiating takeovers by other banks until stability is achieved. The intricate web of processes continues to unfold as microfinance banks grapple with the aftermath of license revocation.

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