The Governor of the Central Bank of Nigeria, Yemi Cardoso, has described as threat to West Africa’s financial stability, the rising trend of non-bank transactions amongst West Africans.
Cardoso, who stated this while speaking at the 10th meeting of the College of Supervisors for Non-Bank Financial Institutions, NBFIs in Abuja yesterday, said despite the surge and its disadvantages, non-bank financial institutions also play crucial roles in the promoting financial growth and inclusion in the West African Monetary Zone.
According to him, NBFIs, which provide financial services but do not accept deposits like commercial banks, provide essential financial services to underserved segments of the population, including small and medium-sized enterprises, adding that they present a unique opportunity to quicken regional integration and shared economic prosperity.
While he acknowledged the importance of monitoring trends, risks and innovations of NBFIs/Other Financial Institutions (OFIs), the governor also commended the efforts of the CSNBFI in advancing regulatory frameworks, notably mentioning the recent adoption of the Model Act for Non-Bank Financial Institutions and Non-Bank Financial Holding Companies across the WAMZ.
This legislative milestone, approved in March 2024, marks a pivotal step towards harmonising supervisory practices and enhancing the resilience of the financial sector.
The CBN governor also commented on the rise in fintech loans, alongside crypto and stablecoin assets while urging supervisors to bolster their cybersecurity frameworks and adopt risk-based supervisory approaches to mitigate associated risks.
Cardoso said, “We reiterate the importance of monitoring trends, risks and innovations of NBFIs/OFIs as their increasing transaction volumes pose major financial system stability risk.
“Fintech loans and digital platforms are reshaping financial intermediation.
“Fintech loans are one of the most commonly reported innovations. While overall this may appear small in relation to the size of credit by DMBs, some jurisdictions globally, have noted a growing trend in the volume of these loans. In many cases, fintech credit is provided via electronic platforms that connect lenders to borrowers – in which case the platform takes the role of a financial auxiliary.”
He added, “In some cases, however, loans are taken on the balance sheet of these platforms (even if it is short-term), in which case the platforms are akin to new types of financial intermediaries. These entities are typically fintech firms that offer applications, software, and other technologies to streamline mobile and online banking.
“In many jurisdictions, these digital firms have a banking license and are subject to prudential requirements or they may just be regulated as Fintech payment service firms. Innovations linked to crypto or stablecoin assets were also reported by some jurisdictions.”
The CBN has been actively working to develop frameworks that can effectively monitor and manage these risks, according to information made available to us.
On his part, Chairman of the college, Yaw Sapong, in his speech, acknowledged the crucial role of non-bank financial institutions in promoting financial inclusion and economic growth.
Sapong who highlighted some of the achievements made by the college, including harmonised regulatory frameworks and automation of supervisory processes, emphasised the need for coordinated policy responses to address current economic challenges, including inflation and currency fluctuations.
He said, “We must continue to work together to build a resilient and inclusive financial sector that supports sustainable economic growth in our region.”
Similarly, the Director General of WAMI, Dr Olorunsola Olowofeso, said after turbulent years, the outlook was gradually improving in WAMZ.
According to Olowofeso who emphasised the need for strengthened resilience in the financial sector, citing emerging risks such as climate-related risks, cyber threats and digitization challenges, the funding squeeze persisted, as governments continued to grapple with financing shortages, high borrowing costs, and impending debt repayments.
He stated that member states should create suitable national cybersecurity strategies as well as regulatory and supervisory frameworks in order to increase the resilience of the financial industry, adding that the meeting presented another opportunity to review developments in the non-bank financial institutions sub-sector within the zone for the second half of 2023 and the first quarter of 2024, assess the regulatory and supervisory challenges of member states, and share experiences to mitigate emerging risks to the financial system of WAMZ.
“We must continue to monitor policy actions and spillovers to ensure the financial system is resilient,” he urged. WAMI remains committed to implementing the WAMZ integration agenda,” he said.
