Nigeria’s new Banks and Other Financial Institutions Act (BOFIA) 2020, took nearly 30 years in the making. While criticised for being a ‘mixed bag’, some argue its presence could provide opportunities to investors in Africa.
One of the key provisions of BOFIA 2020 is to make bank officials personally liable for contraventions of the terms of a banking licence. Joachim MacEbong, senior analyst at SBM Intelligence, thinks this “should improve compliance and reduce recklessness.”
By forcing bank management to have ‘skin in the game’, the new regulations hope to avoid events like the toxic asset crisis of 2009, to which Nigerian banks were seen by some as having contributed.
These changes, says Mayowa Olugbile, finance partner at Future Africa, have “far-reaching implications” in the areas of monitoring, and enforcement of safer lending practices. But they may also go too far in the opposite direction.
The Act means that loans in excess of N3m without collateral will require CBN approval. “Many small and medium businesses rely heavily on revenue-based financing”, says Olugbile. They will now face an extra hurdle, despite being already well known to their banks, which will further slow allocation of credit in Nigeria’s economy.
The increased powers given to the CBN potentially mean that the regulatory bank could become more obstructive in coming days, according to MacEbong, who worries about administrative overreach.
The new BOFIA even gives the CBN authority over the opening or shutting down of bank branches!”, says MacEbong. “On top of that, the immunity given to the CBN in the BOFIA Act also limits the redress banks can seek if they feel they have a case concerning any action taken by the regulator.”
he piece of legislation provides opportunities for fintech investors to “support meaningful innovation in financial services that improves the lives of people,” says Olugbile. “Generally, certain aspects of the act will be advantageous to local fintechs, partly because a slight barrier was incorporated to ensure foreign fintechs localise their operations, giving a degree of protection to home grown players, and also because the CBN’s powers have been broadened, to the extent of having to sanction even some of most rudimentary moves by banks,” says Olugbile.
“It can be argued that this creates a risk that banks are stifled by the CBN and it might make banks move slower and adapt with less agility, increasing the extent to which fintechs can step up to plug gaps in the financial services space.” The act allows for penalties if fintechs are not registered and holding licenses.
