An Examination of the Legal Framework for Regulating Microfinance Institutions in North West Nigeria

Microfinance institutions play a critical role in expanding financial inclusion across North West Nigeria, yet the regulatory and supervisory framework governing them has been criticised for inadequate protection of depositors, weak capital requirements, and limited enforcement against fraudulent operators. This study examines the regulatory framework for microfinance banks under the Banks and Other Financial Institutions Act, Central Bank of Nigeria Microfinance Policy Framework, and the Nigeria Deposit Insurance Corporation Act, with specific focus on institutions operating in Kano and Sokoto States. A doctrinal methodology supplemented by structured interviews with managers of 15 licensed microfinance banks and 10 CBN examiners was adopted. Results indicate that capital adequacy compliance was below CBN requirements for 40 percent of reviewed microfinance banks. Consumer complaint resolution mechanisms were largely absent or non-functional. The NDIC coverage ceiling of 500,000 Naira was inadequate for many depositors. Regulatory sanctions were rarely imposed for sub-standard compliance, partly due to systemic forbearance to avoid market disruption. The study concludes that the microfinance regulatory framework requires stronger enforcement and clearer consumer protection provisions. Recommendations include mandatory client protection certification, establishment of an ombudsman for microfinance disputes, enhanced NDIC coverage levels, and stricter licensing pre-conditions requiring demonstrated community lending capacity.

Keywords: microfinance regulation, CBN, financial inclusion, depositor protection, North West Nigeria