Financial experts are urging the Central Bank of Nigeria (CBN) to mandate that all deposit-taking fintechs and microfinance banks (MFBs) publish annual financial reports. This call for increased transparency targets institutions entrusted with public funds and seeks to level the playing field in the financial sector.
This recommendation surfaced during a recent episode of the Drinks and Mics Podcast, hosted by Ugo Obi-Chukwu. The panel discussed the current regulatory landscape, highlighting that commercial banks endure stricter disclosure requirements compared to many fintech operators.
Panel Insights on Financial Disclosure
Ugo Obi-Chukwu expressed the necessity for financial institutions that manage customer deposits to disclose their financial performance. He emphasized, “I can’t wait for the CBN to require fintech companies to publish their annual reports. If they hold deposits, they should be compelled to do so, and this should apply to all microfinance banks as well.”
Supporting this viewpoint, financial expert Dele Akintola pointed out that public financial disclosure is standard in various markets. He stated, “All financial services should be reported by default, similar to the practices observed in Kenya.”
Echoing these sentiments, Arnold Dublin-Green, managing director and CEO of wealth management at Renaissance Capital Africa, criticized the regulatory imbalance that favors fintechs over traditional banks. He noted that banks face stringent regulations regarding capital adequacy and non-performing loan (NPL) ratios, which do not apply equally to fintech firms.
Regulatory Context for Microfinance Banks
This dialogue unfolds amid the existing CBN regulations, which govern microfinance banks. A March 2020 CBN Circular mandates that all MFBs submit their audited financial statements to the Office of Other Financial Institutions Supervision (OFISD) within four months of their financial year-end. These banks are also required to display summaries of their audited financial statements at all branches, while national MFBs must publish their complete annual financial statements in major newspapers.
Moreover, external auditors must deliver a domestic report on accounts to OFISD within three months following the financial year’s conclusion. Despite these requirements, some argue against extending public reporting obligations to all fintech operators.
Debate on Reporting Requirements
Panelist Tunji Andrews, founder and CEO of Awabah, posited that the varied business models and risk profiles of fintechs and commercial banks warrant different disclosure requirements. He cautioned that imposing mandatory reporting early could stifle innovation and deter new entrants. “If we mandated publication for all financial service providers, then no fintech would have evolved,” Andrews explained. He highlighted that early-stage fintechs often face significant operational challenges, and disclosing financial strain may deter potential customers.
Andrews illustrated this with the case of a large deposit-taking fintech that focused heavily on customer acquisition through subsidies. “If that company had publicly reported significant losses, even depositors might have fled,” he added, underscoring the need for fintechs to establish customer trust before full disclosure.
Clarifying the Distinction Between Fintechs and Deposit-taking Entities
In response, Obi-Chukwu emphasized the need to differentiate between fintech platforms and their licensed microfinance bank subsidiaries. He argued that while payment-focused fintechs may not require public financial reports, those entities that accept customer deposits must prioritize transparency. “For example, if XYZ Microfinance Bank takes deposits, it needs to be public,” he stated. Andrews concurred with this principle but urged caution in imposing such disclosures as prerequisites for newly launched businesses.
Funding Dynamics and Customer Confidence
The panel also explored the funding advantages some fintech firms enjoy. Akintola noted that companies like Monypoint frequently operate with minimal funding costs since customer deposits are often transaction-based. “Their cost of funds is nearly zero,” he remarked, elucidating that as customers receive larger sums, they tend to transfer funds to more established banks. Additionally, he highlighted a trend among Tier 1 banks processing approximately $200 million in weekly exchanges, suggesting an uptick in confidence in naira-denominated assets.
Understanding Current Disclosure Practices
While microfinance banks are mandated to prepare and submit audited financial statements to regulators, they do not face the same public disclosure requirements as commercial banks. Most major fintech companies in Nigeria, including prominent players like OPay, Moniepoint, Kuda, and PalmPay, typically do not publish comprehensive annual financial statements. However, some do share key operational and financial milestones on a regular basis, contributing to a fragmented landscape of transparency in the fintech sector.
