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Strengthening Consumer Protection; Regulation and Supervision of Microfinance Banks in Nigeria

Project Development Objective ( PDO )

This project aims to help the Government of Nigeria to promote responsible financial inclusion through strengthening the regulatory and institutional framework for financial consumer protection and the regulatory and supervisory mechanism for microfinance banks.

Background

This FIRST project supports the Universal financial access 2020 goal which includes Nigeria as a priority country, and envisions that all Nigerian adults will be able to have access to an account or an electronic instrument to store money, send payments and receive deposits as the basic building block to manage their financial lives by 2020. The project is also aligned with Nigeria’s financial inclusion priorities as outlined in their National Financial Inclusion Strategy (NFIS) which amongst others, identifies consumer protection as one of the key reform areas and relies on Micro finance banks (MFBs) as one of key delivery channels to expand financial inclusion.  

 

Financial consumer protection is an important aspect of increasing responsible access to financial services and inclusion, and are critical for strengthening consumer’s confidence in the financial sector. The Central Bank of Nigeria (CBN) has taken initial steps towards the implementation of their Consumer Protection agenda, but have yet to operationalize many items detailed within the 2012 NFIS including the consumer protection policy framework for responsible finance which is still in the nascent stage. In addition the Financial Ombudsman Bill was prepared and passed by the National Assembly but it yet to be signed into law by the President and the institution of financial ombudsman is yet to be operationalized. 

 

Moreover an increasing number of deposit taking MFBs combined with deteriorating portfolio quality pose challenges to prudential regulation and supervision as well as risks to financial inclusion.  In this regard, the CBN has requested support with the development of the strategy to improve the current regulatory approach as well as to consider broader reforms of the microfinance sector.

Activities / Output

The expected activities include the following:

1.  Conduct a diagnostic review of financial consumer protection

2.  Draft new and amended consumer protection regulations

3.  Develop a FCP supervisory structure/framework

4.  Design a financial ombudsman structure/model 

5.  Develop a strategy for the regulation and supervision of Microfinance Banks, along with an implementation action plan 

Expected Outcomes

The expected outcome are: 

1.  Adoption of the legal and regulatory framework for financial consumer protection that is aligned with best practices, complemented by a well-functioning and operational FCP supervision function and independent financial ombudsman, builds trust and confidence in the Nigerian financial system, and promotes transparency and fair conduct of financial providers. This will encourage and sustain uptake and usage of financial products and services offered by regulated financial institutions, but will require additional interventions.

2.  The adoption and implementation of the Regulatory Strategy for the Microfinance Banks will result in consolidated, more stable, better regulated and supervised sector, ultimately enabling MFBs to become better positioned to provide quality products and services to unserved and underserved clients.