Understanding CBN’s Move to Regulate Fintechs in Nigeria
Setting the Stage for Regulatory Measures
On December 12, 2023, StartupsVibes, a platform known for its influence in the startup ecosystem, initiated a discussion on Twitter regarding a recent memo circulated by the Nigerian Inter Bank Settlement System (NIBSS). This memo addressed concerns about unlicensed Fintech companies engaging in NIBSS Instant Payment (NIP) transactions, prompting regulatory action by the Central Bank of Nigeria (CBN).
Uncovering the Drama: NIBSS Identifies Unlicensed Fintechs
In the preceding week, NIBSS released a list of Fintech companies lacking licenses to receive direct customer deposits from commercial banks. StartupsVibes investigated the ensuing drama between regulatory authorities and the affected Fintechs, shedding light on the concerns surrounding the safety of customers’ funds.
Read more: Fintech Companies Assure Nigerians That ‘Their Money Is Safe’ Despite NIBSS Warning
Insights from a Financial Expert: Ms. Iheonu Nkechi Gloria (ACA)
StartupsVibes featured Ms. Iheonu Nkechi Gloria, a Chartered Accountant, and Financial Analyst, as a Guest Speaker on a Twitter Space to provide insights into the situation. Ms. Gloria emphasized that CBN’s actions aim to ensure compliance with existing regulations, safeguarding Nigerians from potential risks associated with unlicensed Fintechs engaging in NIP.
Navigating NIBSS Instant Payments (NIP): A Quick Overview
Before delving further, it’s crucial to understand that NIBSS Instant Payments (NIP) is an account-number based, online-real-time Inter-Bank payment solution introduced in 2011. NIP enables instant funds transfer between banks, fostering efficiency in person-to-person, person-to-business, and business-to-business transactions.
Ms. Gloria’s Perspectives: Licensing, Protection, and Compliance
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During the discussion, Ms. Gloria commended Fintechs collaborating with commercial banks to enhance their services. However, she highlighted that a significant portion of Nigerians banking with Fintechs overlook the importance of ensuring these providers are licensed and compliant.
Ms. Gloria emphasized the necessity for Fintechs to undergo proper licensing procedures, either through a Financial Insurance Institution like NDIC or a major commercial bank. This, she argued, provides a protective umbrella for Fintechs in times of unforeseen challenges.
Q&A Session: Addressing Concerns and Clarifying Misconceptions
In response to questions, StartupsVibes inquired about the timing of CBN and NIBSS’s actions. Ms. Gloria clarified that the Central Bank of Nigeria is stringent on compliance, ensuring institutions adhere to rules and protecting customers’ funds from mismanagement.
Another participant, Daniji Emmanuel, raised the point that it is a common practice for fintechs dealing with fund inflow to be affiliated with a commercial bank or a microfinance bank. He questioned how the current situation differs from the existing practices.
Summarizing Gloria’s response to Innocent Amadi’s question, she emphasized that the key distinction lies in the growing number of fintechs and service providers operating without proper licensing. The CBN’s objective is to ensure strict adherence to regulatory measures before the situation becomes uncontrollable. Their focus is on curbing unlicensed service providers from accessing people’s funds and utilizing them for unauthorized purposes.
In addressing concerns about regulatory bodies not consistently checking licensing for fintechs and service providers, Gloria pointed to a specific instance earlier in the year. During that period, the CBN published a lengthy list of Microfinance banks, indicating that their licenses would be revoked if they failed to meet certain conditions. This proactive measure demonstrates the regulatory body’s commitment to enforcing compliance within the financial sector.
Olajumoke raised the crucial question of why unlicensed Fintechs were allowed to operate initially. Ms. Gloria explained that the regulatory bodies had started checking and published a list of non-compliant Microfinance banks earlier in the year.
Did you Know?: Jumia Food Is Leaving Nigeria. Here Is What Nigerians Would Miss About Them.
Conclusion: The Need for Vigilance and Compliance
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As the discussion unfolded, it became evident that the regulatory actions by CBN and NIBSS aim to curb the rise of unlicensed Fintechs, ultimately safeguarding the interests of Nigerian consumers. Ms. Gloria emphasized the importance of due diligence, urging both Fintech users and providers to stay informed and compliant.
For a detailed account of the conversation, listen here: The Recent NIBSS Memo And What It Means for Nigerian Fintechs
About NIBSS: Enhancing Inter-Bank Transactions Since 1993
Nigeria Inter-Bank Settlement System Plc (NIBSS) has played a vital role in modernizing inter-bank payments since its inception in 1993. Owned by licensed banks, including the CBN, NIBSS ensures efficient and secure fund transfers between financial institutions, contributing to the stability of Nigeria’s financial system.
