Nigeria’s currency crisis: The Central Bank warns microfinance banks

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The Central Bank of Nigeria (CBN), has threatened punitive sanction against microfinance bank that transact currency-related transactions in violation of their operating license. The CBN has stated in its latest circular that microfinance bank capitalization is very low and that they are threatening the stability of the financial sector by processing such transactions.

CBN fights against regulated establishments

New Warn!This is the third time that the CBN’s monetary committee has met that the umbrella bank has taken action against financial institutions that are in violation of its forex regulations. News reported that the CBN had announced the cessation of currency sales to Bureau de Change agents after being accused of supporting the black market forex. The CBN also announced the freezing bank accounts of financial technology firms that are also accused of fueling fall of the naira.

In a circular sent out to Nigerian microfinance institutions, the CBN stated that it would revoke a license to operate a microfinance institution that was caught in the act. The circular states:

CBN will continue monitoring developments in Microfinance Banking [MFB]Enforcement of severe regulatory penalties for regulatory violations in the sector, including revocations of authorizations of microfinance banks that are not compliant.

CBN makes ineffective threats

Despite threats from the CBN, past sanctions, Nigeria still experiences foreign currency shortages on the formal market. Some of the threats actually appear to have made the situation worse in the naira.

The CBN’s decision not to sell foreign currency to Bureau de Change operators led to the parallel market’s naira exchange rates plummeting to a new low of US$1 for N525. This rate is 25% less than the official CBN US$ 1 rate for N411.

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Although it is unclear how the latest threat might affect the naira exchange rates, it is unlikely that it will kill the parallel market. It remains to be seen if the CBN will continue to use its policy involving largely ineffective threats against large financial institutions and commercial banks.

Is it possible that the CBN could reverse the depreciation by using only threats? We’d love to hear your thoughts in the comments below.


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