A Microfinance bank is allowed to grant loan to individuals and groups including owners, directors and staff but there is a cap.
This is a called single obligor limit. To underscore the seriousness, the CBN will require the Microfinance banks to pay a fine of one million naira only that is irrespective of the license status.
Afterwards, another one hundred thousand naira is placed on the managing director or the managers who were privy to the transaction. Generally, the single obligor limit is a serious in banking.
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Single Obligor (Meaning)
It is the maximum amount a bank is allowed to lend a single borrower or individual in relation to the total shareholders’ fund of the bank.
Meanwhile, the shareholder’s fund has to do with how much money will be available for the owners of a business to share if the companies were to liquidate.
It is the amount of equity in a business which belongs to the shareholders. For instance a Microfinance bank whose shareholders fund is one million Naira.
Below is a review of provision for the bank’s single obligor.
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Individual Borrower
These are customers who have borrowed in their names without the use of corporate or other form of group names.
The bank is not at liberty to grant more than one percent of their shareholders fund and this case the maximum an individual can get is one million Naira only.
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Group Borrower
This occurs when some individuals come together for reasons that promote economies of scale to access a loan. It may be corporate or trade groups.
Staff Borrowing
Here, there are no restrictions around the extension of loans to staff but what is important is that it should be in line with the staff condition of service.
