Cardoso: Rising volume of non-bank transactions threatens financial stability in West Africa 

The Central Bank of Nigeria (CBN) governor, Yemi Cardoso, has raised concerns about the growing transaction volumes of Non-Bank Financial Institutions (NBFIs) and Other Financial Institutions (OFIs), citing significant risks to financial stability. 

Cardoso, represented by Abayomi Arogundade, Acting Director of the Other Financial Institutions Department at the CBN, noted this during the 10th Meeting of the College of Supervisors for Non-Bank Financial Institutions (CSNBFI) in Abuja on Monday. 

A non-bank financial institution is a company that offers financial services but does not hold banking licences and therefore cannot accept deposits. 

The CBN governor also commented on the rise in fintech loans, alongside crypto and stablecoin assets. 

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 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. 

“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.” 

He emphasized that while these innovations offer significant opportunities for financial inclusion and efficiency, they also pose substantial risks to financial stability if not properly regulated.

The CBN has been actively working to develop frameworks that can effectively monitor and manage these risks. 

West Africa faces funding squeeze 

Dr. Olorunsola Olowofeso, Director General of the West African Monetary Institute (WAMI), also identified major financial issues in West Africa, such as funding squeeze. 

He further emphasized the need to bolster the financial sector’s resilience against emerging risks like climate-related issues, internet disruptions, cyber threats, and social media-driven instability. 

Olowofeso said: “In the WAMZ, after turbulent years, the outlook is gradually improving. However, the funding squeeze persists as governments continue to grapple with financing shortages, high borrowing costs, and impending debt repayments. 

“Emerging risks to the financial system include climate-related risks, internet disruption, cyber and social media threats arising from the digitization of financial services.” 

He stressed the importance of developing adequate national cybersecurity strategies and regulatory frameworks to address these emerging risks and strengthen the financial sector’s resilience. 

More Insights 

• This is according to data released by the Nigeria Inter-Bank Settlement Systems (NIBSS). The mobile money transactions figure for Q1 2024 represents an 89% year-on-year. growth when compared with the N9.1 trillion transactions recorded in the same period in 2023. 

• From 211 at the end of 2023, the number of companies approved to operate loan apps in the country has risen to 263, according to the FCCPC’s database. This total includes those given full approval, conditional approval, and those licensed by the CBN. 

• Despite the rise in the number of digital leaders that have registered with the FCCPC and secured approval to operate, hundreds of other unregistered lenders are still playing in the market and getting patronage from desperate borrowers.