Licensing Requirements For Digital Banks In Nigeria
Digital banking is one of Fintech’s biggest revolutions in the banking industry. The culture of traditional banking is increasingly becoming jaded due to the inevitable evolution of technology. Fintech, is one of the most heavily regulated in Nigeria. What exactly is a digital bank? In ordinary parlance, a digital bank is a virtually structured bank. The digital version of a traditional bank offering banking services to customers. Examples are Kuda, WEMA’s ALAT, Fairmoney, etc. Digital Banks are usually operated in varying forms. They may be microfinance banks, payment service banks or licensed financial institutions. Licensing requirements for digital banks vary with the form. While all other requirements provided by CBN for the regulation of traditional banks are equally applicable, this article seeks to explore other requirements that may pertain to digital banks.
Importantly, the most common form of digital banks are usually microfinance banks. The reason is not hard to seek. It enables receipt of deposits as well as loan grants. It however prohibits dealings with foreign currencies in remittances and purchases. The capital requirement for licensing as a microfinance banking depends on the geographical spread. For national coverage, it’s five billion while for the state, it’s one billion. Also, an applicant must obtain an approval in principle, valid for only six months before obtaining the final license.
In respect of payment service banks, the capital requirement for license is five billion Naira. It’s important to note that PSBs are not permitted to grant loans but only receive deposits. For Fintech licensed institutions, the capital requirement is one hundred million Naira and the licensing is only in respect of asset and project finance and loans excluding deposits.
Additionally digital banks are also regulated by the Nigerian Deposit Insurance Corporation (ÑDIC) ACT. The NDIC ACT thus requires all digital banks accepting customer deposits to get insured with NDIC.
References
1 Abubakar Idris, “ In Nigeria, the central bank’s revised microfinance bank licence threatens digital banking startups” available at https://techcabal.com/2020/03/12/cbn-revised-mfb-licence-digital-bank-startups/ accessed on Jan 17 2023
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