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Financial Inclusion: CBN Issues Guidelines On Payment Service Banks

In furtherance of its implementation of the National Financial Inclusion Strategy, the Central Bank of Nigeria has released new guidelines for the establishment of Payment Service Banks in rural areas across the country.

To achieve this objective, the apex bank on Sunday stated in the draft guidelines for the regulation of the proposed banks that the objective of the proposed institutions is to enhance financial inclusion in rural areas by increasing access to deposit products, payment and remittance services to small businesses, low-income households and other entities through high-value transactions in a secured technology-driven environment.

The draft regulatory guidelines showed that unlike the community banks of old which had the power to grant loans, advances and guarantees, the new banks would not be allowed to engage in such services.

In addition, Payment Service Banks are expected to have a minimum capital base of N5 billion with capital adequacy ratio of 10 per cent or as may be prescribed by the CBN from time to time.

This is even as they are expected to operate mostly in rural areas and unbanked location, with not less than 50 percent physical points in such areas.

Other regulatory requirements set for the proposed banks in the draft guidelines indicate that they are expected to establish ATMs in some areas; be at liberty to operate through banking agents; use other channels, including electronic platforms to reach-out to its customers and establish coordinating centres in clusters of outlets to superintend and control the activities of various access points and banking agents.

While also requiring the rural banks to be technology-driven and to conform to the best practices of data storage; security and integrity, the guidelines listed also the activities they can engage in as “maintain savings accounts and accept deposits from individuals and small businesses, which shall be covered by the deposit insurance scheme.

“They are to carry out payments and remittance (including inbound cross-border personal remittances) services through various channels within Nigeria; issue debit and pre-paid cards and operate electronic purse”, the guidelines added.

On the investment market, the rural banks are also permitted to invest in Federal Government and CBN’s securities and carry out such other activities as may be prescribed by the apex bank from time to time.

However, the draft guidelines prohibited the proposed banks from granting any form of loans, advances and guarantees; trading in foreign exchange market; undertaking any other transaction, which is not prescribed in the CBN Regulation on the Scope of Banking and Ancillary Matters, No. 3, 2010.

While requiring the promoters of  the proposed Payment Service Banks to submit a formal application for the grant of a payment service bank licence addressed to the Governor of the CBN, the banks are also required to use the words ‘Payment Service Banks,’ in their names to differentiate them from other financial institutions.

The guidelines also stipulate that a promoter of any of the proposed banks is expected to pay a non-refundable application fee of N500,000 in bank draft as well as a detailed business plan or feasibility report, among others.

The draft regulatory document stated further that “not later than six months after obtaining an Approval-in-Principle, the promoters of a proposed Payment Service Bank shall submit application for the grant of a final licence to the CBN.”

The application is to be accompanied among other things, with a non-refundable licence fee of N2 million.

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