The Central Bank of Nigeria has a new directive on the size of deals microfinance banks can do in the nation. Largely, the apex bank does not want any credit or transaction that exceeds a total amount of N1 million. Largely, as we already know, the microfinance banks of today are fintechs and digital challenger banks. So, this directive is really going to impact these fintechs.
As I write, more than 90% of fintechs would be affected because N1 million transaction size is small money in Nigeria. Yet, there are ways they can overcome this challenge.
In this post, I shared some ways fintechs and digital challenger banks can update their operations to be in compliance.
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I will discuss this deeper during Tekedia Live today. Largely, there is no reason to panic. The central bank has not dropped a hammer here. Innovators must adjust and continue to fix market frictions. I see many ways to be in compliance and I just listed a few on the link. I also expect our members in the compliance world to provide guidance during Tekedia Live.
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Comment #1: Why can’t the CBN come up with a digital banking license like Singapore if they really do care about financial inclusion. These archaic licenses and regulations do more harm than the impact they are trying to make.
My Response: Actually what everyone is saying. But one thing is clear here: digital banks cannot advance real financial inclusions since fintechs/digital banks are not allowed by law to issue bank verification numbers (BVN). So, customers of the digital banks must first be customers of the traditional banks. Yet, CBN is a victim here because Nigeria does not have what other nations have: national identity number. Digital banks’ customers are subsets of traditional banks because they cannot bring full new customers into the fold.
Comment #2: CBN is a very smart institution. The goal is not to run against innovation but to protect the traditional banks from running out of business. I think this is an important thing to do. Traditional banks are still very instrumental to the progress of the nation even for a long time to come, hence the need for some protection through, crafting ways to indirectly force collaboration… We can call it a “pseudo-merger” at play.
The result: the fintechs can leverage the physical infrastructure of the traditional banks to reach new customers and provide a holistic value to existing ones. The traditional ones can leverage the digital prowess of fintechs to scale operational efficiency and make things better for their mostly, non-digital customers.
From my point of view: It’s a win-win.
My Response: “the goal is not to run against innovation but to protect the traditional banks from running out of business.” – I made the point that CBN expects that deeper partnership. Now, I expect Kuda which has tons of money to explore actually buying a traditional bank to justify the $500 million tag.
Central Bank of Nigeria Sends Warning Shot to Microfinance Banks and Digital Challenger Banks
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As long as we keep applauding mediocre performances and policy directives, our advancement as a society will remain a mirage.
How do we know what works and what evidence do we have that we on track? Our banks make money for being banks, it doesn’t matter whether they innovate or provide quality services…
We want the growth of fintech firms to be dependent on how fast or slow the traditional banks move? It’s not different from how we used quota system and federal character to kill Nigeria’s public sector, now we are directly and indirectly extending same to the private sector.
If the bankers committee championed BVN, what a responsible and agile CBN should be doing is to democratise the project, or substitute BVN for NIN, to enable exponential on-boarding of new people into the financial system. It’s unworkable with the current framework, since you must first become a bank customer before you can deal with fintech or digital banks.
With the falling state of naira, what is really the value of a million naira that we are limiting licensed microfinance banks to contend with? This timid and subjective way of understanding and approaching reality is something I find very absurd.
We are neither smart nor brave in all attempts to get Nigeria working, yet we keep applauding pitiful decisions as great call.
Thank you Francis.
Regulatory bodies colluding with big players to set entry barriers for new entrants will be tbe downfall of Nigeria.
Whether they like it or not ambitious fintecs will find always find a way around these backward and archaic rules and regulations and Nigerians would missed out on getting quality and better service.
Thanks for this write-up.