# CENTRAL BANK OF NIGERIA

Financial Policy and Regulation Department
Central Business District
P.M.B. 0187
Garki, Abuja.

Tel: 09-46237401
E-mail: fprd@cbn.gov.ng

FPR/DIR/ GEN/ CIR/06/016

April 5, 2017

## CIRCULAR ON THE GUIDELINES FOR THE REGULATION AND SUPERVISION OF NON-INTEREST (ISLAMIC) MICROFINANCE BANKS IN NIGERIA

Further to its mandate of promoting a sound financial system in Nigeria, the Central Bank of Nigeria hereby issues the Guidelines on the Regulation and Supervision of Non-Interest (Islamic) Microfinance Banks (NIMFBs) in Nigeria.

The guidelines was developed to provide a level playing field between the conventional and the non-interest Microfinance Banks and to address issues underpinning the operation of non-interest financial institutions (NIFIs).

The guidelines is expected to enhance financial inclusion by bringing to the formal sector, individuals, communities and corporations that are not captured by the conventional Microfinance Banks (MFBs).

The minimum standard operating procedures, prudential ratios and other regulatory requirements that operators of NIMFBs are expected to comply with have been properly specified in the guidelines.

KEVIN N. AMUGO
DIRECTOR, FINANCIAL POLICY AND REGULATION DEPARTMENT

# CENTRAL BANK OF NIGERIA

GUIDELINES ON THE REGULATION AND SUPERVISION OF NON-INTEREST (ISLAMIC) MICROFINANCE BANKS IN NIGERIA

# GUIDELINES ON THE REGULATION AND SUPERVISION OF NON-INTEREST (ISLAMIC) MICROFINANCE BANKS IN NIGERIA

## Table of Contents

1.0 INTRODUCTION.........................................................................................................................1
    1.1 OBJECTIVE...........................................................................................................................2
    1.2 LEGAL FRAMEWORK..........................................................................................................2
    1.3 DEFINITION OF TERMS........................................................................................................2
2.0 PERMISSIBLE AND NON PERMISSIBLE ACTIVITIES..........................................................6
    2.1 PERMISSIBLE ACTIVITIES...................................................................................................6
    2.2 NON PERMISSIBLE ACTIVITIES........................................................................................6
3.0 OWNERSHIP AND LICENSING REQUIREMENTS..............................................................7
    3.1 OWNERSHIP REQUIREMENTS...........................................................................................7
    3.2 LICENSING REQUIREMENTS..............................................................................................8
        3.2.1 CATEGORIZATION........................................................................................................8
        3.2.2 TRANSFORMATION PATH..........................................................................................9
        3.2.3 LICENSING DOCUMENTATION REQUIREMENTS.......................................................9
        3.2.4 APPLICATION AND LICENSING FEES.......................................................................12
        3.2.5 CONDITIONS FOR GRANT OF APPROVAL-IN-PRINCIPLE......................................13
        3.2.6 CONDITIONS FOR FINAL LICENCE AND COMMENCEMENT OF BUSINESS...............13
    3.3 ADDITIONAL REQUIREMENT...........................................................................................14
    3.4 MEMBERSHIP OF NATIONAL ASSOCIATION OF MICROFINANCE BANKS....................14
4.0 NDIC NON-INTEREST DEPOSIT INSURANCE COVERAGE................................................14
    4.1 COMPLIANCE WITH NON-INTEREST DEPOSIT INSURANCE SCHEME..........................14
    4.2 COMPLIANCE WITH STAFF FIDELITY INSURANCE (TAKAFUL).....................................14
5.0 BOARD AND MANAGEMENT..............................................................................................15
    5.1 BASIC REQUIREMENTS....................................................................................................15
        5.1.1 DIRECTORS...............................................................................................................15
        5.1.2 MANAGEMENT..........................................................................................................16

5.2 CERTIFICATION AND CAPACITY BUILDING ....................................................... 17
6.0 FINANCING MODES AND INSTRUMENTS........................................................ 18
7.0 FUNDING, ACCOUNTING AND OTHER RELATED MATTERS ................................ 18
  7.1 SOURCES OF FUNDS ................................................................................... 18
  7.2 BOOKS OF ACCOUNT .................................................................................. 18
  7.3 RENDITION OF RETURNS ............................................................................ 19
8.0 COMPLIANCE WITH MONEY LAUNDERING (PROHIBITION) ACT 2013,
  TERRORISM (PREVENTION) ACT 2013 AND KNOW YOUR CUSTOMER (KYC)
  CIRCULARS..................................................................................................... 20
9.0 ESTABLISHMENT OF A NIMFB AS A SUBSIDIARY OF DEPOSIT MONEY BANKS .... 20
10.0 CORPORATE GOVERNANCE .......................................................................... 20
  10.1 COMPOSITION OF THE ADVISORY COMMITTEE OF EXPERTS (ACE) ................. 21
    10.1.1 QUALIFICATION OF MEMBERS OF ACE .................................................. 21
    10.1.2 DISQUALIFICATION .............................................................................. 22
  10.2 RESIGNATION, TERMINATION AND DISMISSAL ........................................... 22
  10.3 RESTRICTIONS ON ACE MEMBERSHIP ...................................................... 23
  10.4 DUTIES AND RESPONSIBILITIES OF THE ACE TO THE NIMFB ...................... 23
  10.5 DUTIES AND RESPONSIBILITIES OF NIMFB TO THE ACE .............................. 24
  10.6 REPORTING RELATIONSHIP ...................................................................... 24
  10.7 REPORT OF THE ACE TO THE BOARD OF NIMFBs ....................................... 25
  10.8 INDEPENDENCE OF THE ACE ................................................................... 25
  10.9 COMPETENCE OF MEMBERS OF THE ACE ................................................ 25
  10.10 CONFIDENTIALITY AND CONSISTENCY REQUIRED OF ACE ...................... 26
11.0 PUBLICATION OF AUDITED FINANCIAL STATEMENTS ................................... 26
  11.1 PUBLICATION .......................................................................................... 26
  11.2 PENALTIES FOR LATE/FALSE/INACCURATE RENDITION OF ACCOUNTS
    AND RETURNS............................................................................................ 27
12.0 PRUDENTIAL REQUIREMENTS ..................................................................... 28
  12.1.1 COMPULSORY INVESTMENT IN COMPLIANT INSTRUMENTS ................... 28
  12.1.2 LIQUIDITY RATIO .................................................................................. 28
  12.1.3 CAPITAL ADEQUACY RATIO ................................................................. 28
  12.1.4 LIMIT OF INVESTMENT IN FIXED ASSETS .............................................. 29

2

12.1.5 REVALUATION OF FIXED ASSETS ............................................................ 29
12.1.6 FIXED ASSETS/LONG-TERM INVESTMENTS AND BRANCH EXPANSION ........ 29
12.1.7 MAINTENANCE OF CAPITAL FUNDS .......................................................... 30
12.1.8 RESTRICTIONS ON DECLARATION OF DIVIDEND ..................................... 30
12.1.9 LIMIT OF EXPOSURE TO A SINGLE OBLIGOR AND RELATED PARTY ............ 31
12.1.10 FINANCING PORTFOLIO COMPOSITION .................................................. 31
12.1.11 MAXIMUM EQUITY INVESTMENT HOLDING RATIO .................................. 31
12.1.12 PROVISION FOR CLASSIFIED ASSETS ................................................... 32
12.1.13 CONTINGENT ITEMS .............................................................................. 32
12.1.14 DIVESTMENT OF GOVERNMENT’S INTEREST IN GOVERNMENT
  OWNED/SPONSORED NIMFBs ...................................................................... 32
12.2 SPECIAL PRUDENTIAL STANDARDS .............................................................. 33
  12.2.1 UNSECURED FINANCING LIMITS: ........................................................... 33
  12.2.2 FINANCING DOCUMENTATION REQUIREMENTS: ................................... 33
  12.2.3 RESTRICTION OF CO-SIGNERS TO RECEIVE FINANCING FROM THE
    SAME NIMFB ............................................................................................. 33
  12.2.4 CASH RESERVE REQUIREMENTS: .......................................................... 33
12.3 PORTFOLIO- AT- RISK [PAR] ........................................................................ 33
12.4 IMPLEMENTATION OF RECOMMENDATIONS IN EXAMINATION REPORT .......... 34
13.0 CONDUCT OF BUSINESS STANDARDS .......................................................... 35
  13.1 BRANDING .............................................................................................. 35
  13.2 APPROVAL OF CONTRACTS, PRODUCTS AND SERVICES ........................... 35
  13.3 PRODUCT LITERATURE ........................................................................... 35
14.0 PROFIT SHARING INVESTMENT ACCOUNTS ............................................... 35
15.0 ASSESSMENT OF SOUNDNESS ................................................................... 36
16.0 REQUIREMENTS FOR INCREASE IN SHARE CAPITAL ................................... 37
17.0 DISCLOSURE OF INTEREST BY DIRECTORS AND OFFICERS OF NIMFBs ........... 37
18.0 DISLOSURE OF REQUIRED INFORMATION TO CREDIT REFERENCE BUREAUX .. 38
19.0 OPERATIONAL REQUIREMENTS AND CONTROLS ......................................... 38

3

19.1 OPENING/RELOCATION AND CLOSING OF BRANCHES/CASH CENTRES ........... 38
19.2 CHANGE OF NAME ..................................................................................... 39
19.3 DISPLAY OF LICENCE .................................................................................. 39
19.5 INTERNAL CONTROLS .................................................................................. 39
20.0 APPOINTMENT OF CHIEF EXECUTIVE/ PRINCIPAL OFFICERS AND EXTERNAL
  AUDITORS ..................................................................................................... 41
  20.1 APPOINTMENT OF CHIEF EXECUTIVE AND PRINCIPAL OFFICERS .............. 41
  20.2 APPOINTMENT AND RESPONSIBILITIES OF EXTERNAL AUDITORS ............. 41
21.0 SCHEME OF ARRANGEMENT ....................................................................... 43
22.0 RESTRUCTURING AND RE -ORGANIZATION ................................................ 43
23.0 PARTICIPATION OF EXISTING FINANCIAL INSTITUTIONS IN NON-
  INTEREST MICROFINANCE BANKS’ ACTIVITIES ............................................. 43
24.0 COLLABORATION TO REGULATE DEPOSIT/SAVINGS MOBILIZING
  INSTITUTIONS ............................................................................................... 44
25.0 CONDITIONS FOR REVOCATION OF LICENCE .............................................. 45
26.0 EXIT CONDITIONS ...................................................................................... 45
27.0 RISK MANAGEMENT ................................................................................... 46
28.0 RECOMMENDED MINIMUM OPERATIONAL TEMPLATE FOR NON-INTEREST
  (ISLAMIC) MICRO FINANCE IN NIGERIA ...................................................... 46

4

GUIDELINES ON THE REGULATION AND SUPERVISION OF NON-INTEREST (ISLAMIC) MICROFINANCE BANKS IN NIGERIA

1.0 INTRODUCTION

The role of Microfinance Banks (MFBs) in poverty reduction, increased access to financial services, contribution to financial stability and economic development have been established in Nigeria and around the globe. Beyond making credit facilities available to Micro, Small and Medium Enterprises (MSMEs) and the promotion of savings culture, MFBs also serve as veritable means of employment generation and enhancing financial inclusion.

Since 2005 when the Central Bank of Nigeria (CBN) issued the first Regulatory and Supervisory Framework for Microfinance Banks (MFBs) in Nigeria (revised in 2013), a number of MFBs were established across all states in Nigeria and the Federal Capital Territory (FCT) and have continued to thrive and cater for the economically active poor in the country.

However, despite the increased number of MFBs in Nigeria, a large percentage of Nigerians still lack access to financial services. This could be attributed to high cost of transactions, abhorrence of Interest and apathy to unethical investment by a significant part of the populace. It is in the light of these and other reasons, that the development of this Guidelines becomes imperative.

The Guidelines is aimed at among other things, offering the public an alternative system of micro finance banking that operates based on the concept of profit and loss sharing rather than charging of interest. It is expected that the introduction of this concept would engender broader and healthier competition among MFBs which may in the long run reduce the cost of doing business.

Furthermore, the introduction of the new banking model by the CBN (Central Bank of Nigeria Regulation on the Scope of Banking Activities and Ancillary Matters No. 3, 2010); the release of the Guidelines for the Regulation and Supervision of Institutions Offering Non-Interest Financial Services in Nigeria in 2011 and the licensing of some Non-Interest Financial Institutions (NIFIs) further necessitated the need to develop and issue an operating guidelines for Non-interest Microfinance Banks (NIMFB) especially given the increasing number of requests from promoters interested in setting up such banks.

It is expected that the introduction of non-interest microfinance banking services will enhance financial inclusion by bringing to the formal sector, individuals, communities and corporations that were not captured by the conventional Microfinance Banks (MFBs). It will equally assist the economically active poor that patronize these institutions in alleviating poverty in a sustainable way that will in the long run reduce their vulnerabilities, improve their earning capacity and general wellbeing.

---

Accordingly, this Guidelines is applicable to Non-Interest Micro Finance Banks (NIMFBs) operating under the principles of Islamic Commercial Jurisprudence, one of the categories of Non-Interest Financial Institutions (NIFIs) under the Central Bank of Nigeria “Guidelines for the Regulation and Supervision of Institutions Offering Non-interest Financial Services in Nigeria, June 2011”.

1.1 OBJECTIVE

The objective of this Guidelines is to provide the minimum standards for the operation of NIMFBs in Nigeria and is applicable to NIMFBs only.

1.2 LEGAL FRAMEWORK

This Supervisory and Regulatory Guidelines is issued by the Central Bank of Nigeria (CBN) pursuant to the powers conferred on it by the provisions of Section 33 (1) (b) of the CBN Act 2007; Sections 23(1); 55(2); 59(1)(a); 61 of Banks and Other Financial Institutions Act (BOFIA) 1991 (as amended) and Section 4(1)(c) of the “Regulation on the Scope of Banking Activities and Ancillary Matters, No. 3, 2010”. It shall be read together with the provisions of other relevant sections of BOFIA 1991 (as amended), the CBN Act 2007, Companies and Allied Matters Act (CAMA) 1990 (as amended) and circulars/guidelines issued by the CBN from time to time.

1.3 DEFINITION OF TERMS

a. NON-INTEREST (ISLAMIC) FINANCIAL INSTITUTION (NIFI)

A Non-interest (Islamic) Financial Institution (NIFI) means a bank or Other Financial Institution (OFI) under the purview of the Central Bank of Nigeria (CBN) which transacts banking business, engages in trading, investment and commercial activities and also provides financial products and services in accordance with the principles of Islamic Commercial Jurisprudence.

A Non-Interest (Islamic) Microfinance Bank (NIMFB) therefore means any Microfinance Bank licenced by the CBN to undertake the business of providing financial services, engages in trading, investment and commercial activities and also provides financial products and services as specified in Section 2 of this Guidelines.

b. NIMFB TARGET CLIENTS

A NIMFB target clients shall include the economically active low-income earners, low income households, the un-banked and under-served people such as: physically challenged; youths; micro-entrepreneurs; informal sector operators; subsistence farmers in urban and rural areas.

c. MICRO-ENTERPRISE

A microenterprise is a business that operates with very small start-up capital. The management is often built around the sole owner or micro-entrepreneur. It provides employment for a few people mainly the immediate family members and does not often require formal registration to commence operation.

The management and accounting requirements are very simple and flexible. Generally, most micro-entrepreneurs work informally, without business licences or formal records of their activities. The scope of economic activities of micro-enterprises typically includes primary production and crafts, value added processing, distributive trades and diverse services.

d. MICRO FINANCING

Micro financing is the provision of broad range of financial and non-financial services to low-income clients such as the operators of micro-enterprises, peasant farmers, artisans, fishermen, youths, women, retirees etc in the formal and informal sectors. The financing are usually unsecured, but typically granted on the basis of the applicant's character and the combined cash flow of the business and household.

The tenure of micro financing is usually within 180 days (6 months). Tenures longer than six (6) months would be treated as special cases. In the case of agriculture, or projects with longer gestation period, however, a maximum tenure of twelve (12) months is permissible and in housing microfinance, a longer tenure of twenty-four (24) months is permissible.

The maximum principal amount of any financing granted by NIMFBs shall not exceed N500,000, or one (1) per cent of the shareholders fund (SHF) unimpaired by losses and/or as may be reviewed from time to time by the CBN.

Micro financing may also require joint and several guarantees of one or more persons. The repayment may be on a daily, weekly, bi-monthly, monthly basis or in accordance with amortization schedule in the financing contract.

e. FREE FUNDS

Free funds are calculated as the Shareholders' Funds unimpaired by losses minus net fixed assets and non-current investment (including cost of establishing the new outlet).

f. RELATED PARTY

A related party is an individual or group of individuals that is related in some ways to any of the Directors and Management staff of a NIMFB. This could include a family member, relative, shareholder, related company or proxy or associates.

g. Specialized Insured Institutions Department (SIID)

This refers to the Specialized Insured Institutions Department (SIID) of the Nigeria Deposit Insurance Corporation (NDIC).

h. RIBA

This is any excess amount, value or benefit in any form over and above the principal which is without due counter consideration. Charging or paying of interest is an example of riba.

i. MUSHARAKA

This is a kind of partnership contract in which the partners agree to contribute capital to an enterprise, whether existing or new. Profits generated by that enterprise are shared in accordance with the percentage specified in the musharaka contract, while losses are shared in proportion to each partner's share of capital.

j. MUDARABA

This is a kind of partnership where one partner provides capital to a second partner for investing in a commercial enterprise. The investment comes from the first partner called rabbul maal while the management is carried out by the second partner called the mudarib. Profit is shared according to pre agreed sharing ratio while loss is borne by the fund provider (rabbul maal) except in the case of proven negligence, misconduct or breach of contract by the manager (mudarib).

k. MURABAHА

This means a sale contract whereby the institution sells to a customer a specified asset, in which the selling price is the sum of the cost price and an agreed profit margin. The sale contract is usually preceded by a promise to purchase from the customer.

l. ISTISNA

This is the sale of a specified asset, with an obligation on the part of the seller to manufacture/construct it using his own materials and to deliver it on a specific date in return for a specific price to be paid in one lump sum or installments.

m. IJARA

This is a leasing contract between a lessor who owns an asset and a lessee who needs to use the asset but cannot afford to buy same or does not want to own it. The lessee pays the lessor rentals for the use of the asset. The amount of rental and period of the rent must be agreed at the beginning of the contract by the parties. Ownership of the asset remains with the lessor throughout the period of the lease and seeks to recover the capital cost of the equipment plus a profit margin out of the lease rentals receivable during the period of the lease.

n. ADVISORY COMMITTEE OF EXPERTS (ACE)

The Advisory Committee of Experts (ACE) globally known as Shari’ah Board is part of the Governance structure of NIFIs. It comprises of individuals knowledgeable in the field of Islamic Commercial Jurisprudence (Fiqh al Muamalat) who advice the NIFI on its operations to ensure compliance with the principles underpinning its operations.

o. FINANCIAL REGULATION ADVISORY COUNCIL OF EXPERTS (FRACE)

FRACE is the central advisory regulatory body set up by the Central Bank of Nigeria comprising of individuals knowledgeable in the field of Islamic Commercial Jurisprudence to provide the following roles among others:

• Give expert opinion and assistance on non-interest non-interest (Islamic) banking and finance matters referred to it by the CBN;
• Endorse and validate application documents for new products and services, advert materials etc from NIFIs to ensure that they comply with the provisions of Islamic commercial Jurisprudence;
• Resolve disputes arising between board of directors and the ACE of NIFIs, etc

p. PROFIT EQUALIZATION RESERVE (PER)

Is a reserve created by appropriating money out of the profits earned on the co-mingled pool of assets before the allocation to NIFI (as Mudarib) and the PSIAHs (as the Rabbul Mal). It is used to smoothen profit payout to Profit Sharing Investment Account Holders (PSIAHs) during period of low returns from the assets financed by PSIAHs deposits.

q. INVESTMENT RISK RESERVE (IRR)

The amount appropriated by a NIFI out of the Mudaraba profits, before allocating the Mudarib’s share of profit, in order to maintain a certain level of return on investment for unrestricted investment account holders.

2.0 PERMISSIBLE AND NON PERMISSIBLE ACTIVITIES

2.1 PERMISSIBLE ACTIVITIES

A NIMFB shall be allowed to engage in the provision of such products and services that are permissible for MFBs operating in Nigeria provided they comply with the principles under this model and are approved by the CBN. It shall use only such products and services after obtaining the approval of its Advisory Committee of Experts (ACE) and the CBN.

2.2 NON PERMISSIBLE ACTIVITIES

A NIMFB shall not engage in any business operation involving any of the following:

• Riba (interest);
• Uncertainty or ambiguity relating to the subject matter, terms and conditions of a contract;
• Gambling;
• Speculation, such as short selling, and other derivatives not compliant with the principles underpinning the operations of NIFIs;
• Unjust enrichment;
• Exploitation/unfair trade practices;
• Dealings in pork, alcohol, intoxicants, arms & ammunition, pornography and;
• Other transactions, products and services, which are not compliant with the principles of Islamic commercial jurisprudence.

In addition to the above, NIMFBs are also not allowed to engage in the following activities:

i. Acceptance of public sector (government) deposits except for the provision of payment services such as salary, gratuity, pension for employees of the various tiers of government, disbursement of financing programme by government agencies, groups and individuals for poverty alleviation on non-recourse basis provided it is in compliant with the provisions of the principles underpinning this model;

ii. Foreign exchange transactions;

iii. International commercial papers;

iv. International corporate finance;

v. International electronic funds transfer;

vi. Clearing house activities except collection of money or proceeds of banking instruments on behalf of their customers including clearing of cheques through correspondent banks;

vii. Collection of third party cheques and other instruments for the purpose of clearing through correspondent banks;

viii. Leasing, renting, and sale/purchase of any kind with its directors, officers, employees or persons who either individually or in concert with their family members and beneficiaries own five per cent (5%) or more of the equity of the NIMFB, without the prior approval in writing of the CBN; and

ix. Dealing in land for speculative purposes

3.0 OWNERSHIP AND LICENSING REQUIREMENTS

3.1 OWNERSHIP REQUIREMENTS

i. A NIMFB may be established by individuals, group of individuals, community development associations, private corporate entities, foreign investors as well as local and state governments.

ii. No individual, group of individuals, their proxies or corporate entities and/or their subsidiaries shall own controlling interest in more than one NIMFB, except as approved by the CBN.

iii. A financial holding company that intends to set up any category of NIMFB as a subsidiary shall be required to meet the prescribed capital and other requirements stipulated in this Guidelines.

iv. Government participation in the establishment/ownership of NIMFBs shall be structured according to the following models:

a. Fully-Owned Government Model

In this model, the State or Local Government (LG) is allowed to establish either a State or Unit NIMFB and own one hundred percent (100%) of the equity of the NIMFB. The State or LG shall progressively divest its interest to private investors within a maximum period of five (5) years.

b. Public Private Partnership (PPP) Model

Under this model, State Government could collaborate with private sector entities to set up State NIMFBs, but shall progressively divest its interest within a maximum period of five (5) years. The management and governance of the NIMFB shall be private sector led. The maximum shareholding ratio for the government shall be 60% and the contribution of public/government shall be valued at an agreed valuation method subject to CBN approval.

c. Government-Supported Co-operative Model

A State Government may support a cooperative society already operating in its area to set up a Unit NIMFB with the understanding that, in the course of operations, the members of the society, through personal savings or accumulated profits, will progressively repay the Government's investment and thus become full owners of the bank within a maximum period of five (5) years. The State Government and the cooperative society shall have 75:25 maximum shareholding ratio in this model. The NIMFB shall be run professionally by the private sector and all facilities and infrastructure provided by the government shall be valued and capitalized.

3.2 LICENSING REQUIREMENTS

3.2.1 CATEGORIZATION

There shall be three (3) categories of NIMFBs:

Category 1: Unit NIMFB

A Unit NIMFB is authorized to operate in one location. It shall be required to have a minimum paid-up capital of N20 million (twenty million Naira) and is allowed to have only one branch outside the head office within the same Local Government Area subject to availability of free funds of at least N20 million and compliance with the prescribed minimum prudential requirements.

Category 2: State NIMFB

A State NIMFB is authorized to operate in one State or the Federal Capital Territory (FCT). It shall be required to have a minimum paid-up capital of N100 million (one hundred million Naira) and is allowed to open branches within the same State or the FCT, subject to the availability of free funds and the prior approval of the CBN for each new branch or cash centre.

Category 3: National NIMFB

A National NIMFB is authorized to operate in all the states of the federation including the FCT. It shall be required to have a minimum paid-up capital of N2 billion (two billion Naira), and is allowed to open branches in all States of the Federation and the FCT, subject to the availability of free funds and the prior approval of the CBN for each new branch or cash centre.

The prescribed minimum capital requirement for each category of NIMFB may be reviewed from time to time by the Central Bank of Nigeria.

3.2.2 TRANSFORMATION PATH

a. A Unit NIMFB that intends to transform to a State NIMFB shall be required to surrender its licence and obtain a State NIMFB licence, subject to fulfilling the stipulated licensing requirements as provided in Section 3.2 of this Guidelines.

A State NIMFB that intends to transform to a National NIMFB must have at least five (5) branches which are spread across the Local Government Areas in the State of its original operation. This is to ensure that the State NIMFB has gained the experience necessary to manage a National NIMFB. It shall also be required to surrender its State NIMFB licence and fulfill other stipulated licensing requirements as provided in Section 3.2 of this Guidelines.

b. No new promoter(s) shall be allowed to apply for a National NIMFB licence, that is, a National NIMFB shall emerge through organic growth from a State NIMFB.

3.2.3 LICENSING DOCUMENTATION REQUIREMENTS

1. Promoter(s) seeking a licence for NIMFB business in Nigeria shall apply in writing to the Governor of the Central Bank of Nigeria. The application shall indicate which of the three (3) categories of licences is being applied for.

2. Such application shall be accompanied with the following:

a. Evidence of payment of non-refundable application fee of N50,000, N100,000 and N250,000 for Unit, State and National NIMFBs respectively in bank drafts or by e-payment, in favour of the Central Bank of Nigeria;

b. The deposit of the minimum capital requirement for the relevant category of NIMFB, which shall be made through e-payment into the CBN Non-interest Share Capital Deposit Account. The capital thus deposited together with the realized income (if any) shall be released to the promoters after the grant of a final licence;

c. Evidence of name availability reserved with the Corporate Affairs Commission (CAC);

d. Satisfactory, verifiable and acceptable evidence of payment by the proposed shareholders of the minimum capital requirement for the category of licence being applied for; including personal statement that the capital does not originate from bank credit, any form of credit, questionable sources and any illicit activity such as money laundering; proceeds from terrorism etc.

e. Certificate of capital importation issued by an authorized dealer in the case of foreign capital;

f. Bank Verification Number (BVN) of all directors and shareholders (for individual shareholders), tax clearance and three (3) years audited financial statements for corporate investors;

g. A copy of detailed feasibility report disclosing relevant information that shall include:

i. The aims and objectives of the proposed NIMFB which shall be in consonance with the principles under this model;

ii. The justification for the establishment of the NIMFB;

iii. The services that the NIMFB intends to provide;

iv. The branch expansion programme (if any) within the first five years in the case of State and National NIMFBs;

v. The proposed training programme for staff and management succession plan which shall lay more emphasis on building their capacity in the field of Islamic banking and finance;

vi. A five-year financial projection for the operation of the NIMFB, indicating its expected growth and profitability;

vii. Details of the assumptions upon which the financial projection has been made;

viii. The organizational structure (Organogram) of the NIMFB, setting out in detail, the functions and responsibilities of the top management team. It should clearly show a direct reporting relationship between the Advisory Committee of Experts (ACE) and the Board of Directors (BOD) and an indirect (dotted line) relationship with the Managing Director (MD);

ix. Also, the organogram should show a direct reporting relationship between the Internal Auditor and the BOD and an indirect relationship with the MD;

x. A structure for an Internal Shari'ah Review Mechanism to be headed by a Senior Management staff with appropriate qualification in Islamic Commercial Jurisprudence. The functions of the head of such department/unit should be clearly spelt out. The unit should work hand-in-hand with the ACE, the Risk Management Department/Division/Unit and the Internal Audit Department/Division/Unit of the NIMFB;

xi. The composition of the ACE and the Curriculum Vitae (CV) of each member of the proposed ACE. The qualifications and experience expected of the ACE members shall be as contained in the

"Guidelines on the Governance of Advisory Committees of Experts (ACE) For Non-Interest (Islamic) Financial Institutions in Nigeria" dated February 20, 2015 or as shall be stipulated by the CBN from time to time;

xii. Proposed social performance management framework indicating the social values to the clients over a five (5) year period;

xiii. Appropriate management information systems (MIS), internal controls, enterprise risk management framework and procedures including manuals of operations (MOP). The risk management manual should be robust and comprehensive with clear procedure for the identification of both inherent and emerging risks attributable to Islamic banking products and services as well as mitigants to manage such risks which are compliant with the principles underpinning this model. While the MIS should take cognizance of the specificities of the products and services and the general transactions of the NIMFB; and

xiv. The conclusions based on the assumptions made in the feasibility report.

h. A copy of the draft Memorandum and Articles of Association (MEMART) which shall state that its business operations will be conducted in accordance with the principles underpinning this model of operation.

3. A letter of intent to subscribe to and payment for the shares of the proposed NIMFB, signed by each subscriber.

4. A list of promoters/proposed shareholders in tabular form, showing their business and residential addresses (not post office addresses) and the names and addresses of their bankers.

5. Names, CVs and copies of credentials of the proposed members of the Board of Directors. The CVs must be personally signed and dated. No proposed NIMFB shall incorporate/register its name with the Corporate Affairs Commission (CAC) until a written Approval-In-Principle (AIP) has been communicated to the promoters by the CBN, a copy of which shall be presented to the CAC.

6. In considering an application for a licence, the CBN shall satisfy itself that:

a. The promoters and the proposed Management team are approved persons to invest in/manage a financial services firm in Nigeria as contained in the CBN's guidelines of Approved Persons Regime and other extant regulations of the CBN;

b. The promoters have submitted the names, CVs and credentials of the top management team and members of the ACE of the proposed NIMFB;

c. The minimum paid-up capital/shareholders' funds of the relevant category being applied for is acceptable and the source is verifiable and found satisfactory to the CBN;

d. The management of the proposed NIMFB have the requisite qualifications and experience as specified in Section 5.1.2 of this guidelines;

e. The earnings prospect of the company is realizable; and

f. The objects of the company as disclosed in its Memorandum and Articles of Association (MEMART) agreed with the permissible activities for NIMFBs. The CBN shall before the issuance of an Approval-in-Principle (AIP) arrange an appraisal interview for the promoters of the proposed NIMFB. The date, place and time for the interview shall be communicated to the promoters in writing.

7. If satisfied, the Governor may grant a licence to the NIMFB and where the grant of licence is declined, the promoters shall be communicated in writing and their capital deposit refunded.

8. The CBN may at any time vary or revoke the conditions of a licence or impose additional conditions.

9. Where a licence is granted subject to some conditions, the NIMFB shall comply with those conditions to the satisfaction of the CBN within such period, as the CBN may deem appropriate in the circumstances. Any NIMFB that fails to comply with such conditions shall be guilty of an offence under Section 60 of BOFIA, 1991 (as amended).

10. Every licenced NIMFB shall be required to add "Microfinance Bank" after its name which shall be registered with the Corporate Affairs Commission (CAC) in compliance with the Companies and Allied Matters Act (CAMA) 1990 as amended.

The font size of all characters in its full name, which shall appear on all banking instruments, signage and sign boards, shall be the same. Failure to comply with this requirement at its Head Office and branches shall attract a penalty of N100,000, N150,000 and N250,000 for Unit NIMFB, State NIMFB and National NIMFB, respectively per office/branch where non-compliance is observed.

3.2.4 APPLICATION AND LICENSING FEES

The application and licensing fees, which may be varied at the instance of the CBN, shall be as follows:

	Unit NIMFB	State NIMFB	National NIMFB
Non-refundable Application fee	N50,000	N100,000	N250,000

Non-refundable Licensing fee | N100,000 | N250,000 | N1,000,000

A NIMFB wishing to upgrade/downgrade its licence status shall be required to pay the applicable non-refundable application and licensing fee.

3.2.5 GRANT OF APPROVAL-IN-PRINCIPLE

The Central Bank of Nigeria, on receipt of an application, which is deemed complete in all respect, shall process the application and if satisfied with the overall quality of the proposal, grant Approval-In-Principle (AIP) for establishing a NIMFB within three (3) months of receipt of the application. It should be noted, that an AIP does not confer a permission to commence operation before the grant of a final licence.

3.2.6 CONDITIONS FOR GRANT OF FINAL APPROVAL AND COMMENCEMENT OF BUSINESS

A NIMFB with an AIP shall be granted a final operating licence and may commence business upon satisfying and complying with the following conditions:

a. Submission of:

i. A copy of the shareholders' register in which the equity interest of each shareholder is properly reflected;

ii. A copy of the share certificate issued to each shareholder or other verifiable and admissible evidence of the said shareholding;

iii. Certified true copy of Form CAC 2 (Return of Allotments) filed with the CAC;

iv. Certified true copy of Form CAC 7 (Particulars of Directors), and a written confirmation that the Certified true copy of the Memorandum and Articles of Association (MEMART) were approved by the CBN and filed with the CAC;

v. The opening statement of affairs audited by an approved firm of accountants practicing in Nigeria;

vi. Certified true copy of the certificate of incorporation of the company (together with the original for sighting purposes only);

vii. A copy each of the letters of offer and acceptance of employment by top management staff and a written confirmation that the Management team approved by the CBN has been put in place; and

viii. A letter of undertaking to comply with all the rules and regulations guiding the operations of NIMFBs.

b. The NIMFB shall inform the CBN of the location and address of its Head Office in Nigeria (certified true copy of Form CAC 3) and shall confirm that all

infrastructures for take-off are in place. In addition, the NIMFB shall show evidence that appropriate MIS, internal controls, Enterprise-Wide Risk Management (ERM) and procedures including manuals of operations have been put in place.

c. The NIMFB shall be informed in writing by the CBN that it may commence business after satisfactory physical inspection of its premises.

d. The NIMFB shall inform the CBN in writing of the date of commencement of business.

3.3 ADDITIONAL REQUIREMENT

Every licenced NIMFB shall be recognized by a uniform symbol designed by the CBN for all Non-interest Financial Institutions (NIFIs). All the signages and promotional materials of the NIMFBs shall bear this symbol to facilitate recognition by customers and the general public.

3.4 MEMBERSHIP OF NATIONAL ASSOCIATION OF MICROFINANCE BANKS

Every NIMFB shall be required to be a financial member of the National Association of Microfinance Banks (NAMB) and is required to pay its annual subscription to NAMB not later than 31st January of every year.

4.0 NIGERIA DEPOSIT INSURANCE CORPORATION (NDIC) NON-INTEREST DEPOSIT INSURANCE COVERAGE

4.1 COMPLIANCE WITH NON-INTEREST DEPOSIT INSURANCE SCHEME

In accordance with Section 15 (1) of the Nigeria Deposit Insurance Corporation (NDIC) Act 2006, every licenced MFB shall be required to insure its deposit liabilities with the Corporation. However, NIMFBs shall only use existing NDIC Non-Interest Deposit Insurance Scheme.

4.2 COMPLIANCE WITH STAFF FIDELITY INSURANCE (TAKAFUL)

A NIMFB shall have fidelity insurance (takaful) coverage as provided for in Section 33 of the NDIC Act 2006 or up to such level as may be prescribed from time to time by the NDIC. However, NIMFBs shall use the services of licenced takaful companies only.

14