(Ecofin Agency) - On October 22, the Central Bank of Nigeria (CBN) raised the minimum capital requirement for microfinance institutions to enhance the solidity of the sector.

In a circular addressed to the operators, it is indicated that the minimum capital requirement for microfinance institutions operating in the country has been increased from NGN2 billion to NGN5 billion ($13.8 million) while for institutions approved to operate in just one state, it is NGN1 billion against NGN100 million previously.

Institutions authorized to operate in only one town should raise their minimum capital from NGN20 million to NGN200 million. According to the circular, the new capital requirements should take effect immediately for new institutions but, existing ones are required to comply with the measure by April 1, 2020.

"The microfinance banking sub-sector… had been contending with such challenges as inadequate capital base, weak corporate governance, ineffective risk management practices, dearth of requisite capacity mission drift. The CBN has reviewed the state of health of the sub-sector", Kevin Amugo, CBN’s director said. He also added that: "To meet these requirements, existing microfinance banks are expected to explore the possibility of mergers and acquisitions and/or direct injection of funds".