Forbids Ownership of Multiple MFBs
As it recently announced, the Central Bank of Nigeria (CBN), on Tuesday published the approved Codes of Corporate Governance for Other Financial Institutions in the country, 20 months after issuing the exposure daft on February 27, 2017.
One major highlight of the code, is that government stake is limited to 10%, as they are now required to divest their direct and indirect holdings in any MFB to private investors within a maximum period of five years. However, existing investment above five years, must comply within two years.
Also, no individual, group, or their proxies, or corporate entities and/or their subsidiaries shall own controlling interest in more than one MFB.
An accompanying circular by Kevin N. Amugo, Director, Financial Policy and Regulation Department at the CBN, said the various codes for: microfinance banks, development finance banks, primary mortgage banks, mortgage refinance companies, finance companies and bureau de change, come into effect from December 1, 2018. Implementation of the codes, which the CBN said must be strictly complied with, shall however begin on April 1, 2019.
The circular, he said, was issued in pursuant to the provisions of Sections 33, subsection (1) (b) of the CBN Act No.7 of 2007; and Sections 57, 61-63 of the Banks and Other Financial Institutions Act (BOFIA) of 1991 (as amended).
The code, for instance, also requires that boards of MFBs shall range between five and seven for unit MFBs; five and nine for state MFBs and seven and 12 for national MFBs.
The boards are also to ensure succession plans are in place for MD/CEOs (who shall be the only executive director) of unit operators; and MD/CEO as well as executive directors of state and national MFBs.
Also, at least two members of the board, besides the executive directors are required to have banking or financial industry experience, even as non-executives shall be more than executive directors on the board.
The board shall consist of at least, one independent non-executive director for unit and state MFBs, and two for national MFBs, while state MFBs with a seven-man board shall have a minimum of two.
The code defines an independent director as someone with no direct material relationship with the MFB or any of its officers, major shareholders, subsidiaries and affiliates.
The code also forbids the vesting of the positions of chairman, or Vice Chairman and CEO, on one individual and that no two members of a family shall be on the board an MFB at the same time. It defines “family” to include a “director’s spouse, parents, children, siblings, cousins, uncles, aunts, nephews, nieces and in-laws.”
Continuing, the CBN noted that “where the MFB is a member of a holding company, not more than two family members shall be allowed to serve on the Boards of the MFB and the holding company.”
Also, no two members of a family are allowed to “occupy the positions of Chairman and MD/CEO or Executive Director of the MFB and Chairman or MD/CEO of an MFB’s subsidiary at the same time, qualify for the position of a Non-Executive Director.”
A nominee for non-executive director shall not be an employee of a bank or other financial institution, “except where the MFB is promoted by the bank or other financial institution and the proposed director is representing the interest of such an institution.
The code also limited the maximum tenure of MFB CEOs to 10 years, after which he/she shall not hold any appointment in the same MFB or its subsidiary until three years after the expiration of his tenure as MD/CEO.
All statutory returns submitted to the CBN shall be certified by the MD/CEO, ensuring that such contains no untrue statement or material fact, or risk appropriate sanctions, including monetary sanctions and suspension for a six month period in the first instance and possible removal.
The code also directed that “all insider credit applications pertaining to directors and management, staff and parties related to them, irrespective of size, shall be sent for consideration/approval to the Board Credit Committee.
“Any director whose facility or that of his/her related interests remains nonperforming for more than one year shall cease to be on the board of the MFB and could be blacklisted from sitting on the board of any other financial institution.”
Meanwhile, in a separate publication, the CBN put the number of existing MFBs across the country at 882, breakdown of which shows that the majority are unit (one shop) operators, while only 15 are national and 108 operate as state-wide.
