The Central Bank of Nigeria (CBN) governor, Yemi Cardoso, has said the growing transaction volumes of Non-Bank Financial Institutions (NBFIs) and Other Financial Institutions (OFIs), pose significant risks to financial stability.
He particularly noted loans by Fintechs, pointing out that while overall the loans they give out 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.
Cardoso, who was represented by Abayomi Arogundade, acting Director of the Other Financial Institutions Department at the CBN, stated this at 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.
According to data by the Nigeria Inter-Bank Settlement Systems (NIBSS), transactions by Mobile money operators (MMOs) in Nigeria, including OPay, Palmpay, and others, rose to N17.2 trillion in the first quarter (Q1) of 2024, representing an increase of 89 per cent year-on-year, compared with the N9.1 trillion recorded in the sme period in 2023.
“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 stated.
Cardoso emphasised that while these innovations offer significant opportunities for financial inclusion and efficiency, they also pose substantial risks to financial stability if not properly regulated.
