Financial Technology: Direct Debit, Blacklisting, Single Obligor Limit and Credit Bureaus

FINANCIAL TECHNOLOGY MONTHLY TIPS

REGULATION OF DIRECT DEBITS

Direct debits are regulated by the Central Bank of Nigeria (the “CBN“). In 2018, the CBN released the Revised Regulation for Direct Debit Scheme in Nigeria (the “Regulation“) which regulates direct.

According to the Regulation, direct debit is a cashless method of financial settlement designed to streamline recurring payments. It allows an entity initiating the transaction, i.e. the “biller” collect value from a “payer’s” bank account in accordance with an instruction or mandate provided by the payer.

Direct debits may either be fixed or variable and can only be implemented after an instruction or mandate from the payer. Fixed direct debits enable the debit of fixed amounts from a payer’s account in accordance with the payer’s mandate. Variable direct debits enable the debit of variable amounts from a payer’s account up to a maximum amount stated in the payer’s mandate.

BLACKLISTING WITHIN THE NIGERIAN FINANCIAL SERVICES SECTOR

Did you know that the Central Bank of Nigeria (the “CBN“) maintains a database known as the “Black Book” which contains a list of individuals barred from employment in any financial institution in the country?

The Black Book is a tool for maintaining the integrity of the financial services sector. The CBN has issued the Revised Guidelines for Blacklisting for Banks and Other Financial Institutions Nigeria 2024 (the “Guidelines“), which outlines the procedures for blacklisting individuals in banks and other financial institutions.

Under the Guidelines, financial institutions are required to blacklist individuals who have been implicated in offenses such as fraud, forgery, breach of fiduciary duty, violations of banking regulations and laws, deliberate breaches of confidentiality, misrepresentation of facts, criminal breach of trust, and misconduct affecting financial system stability.

Financial institutions must also render monthly reports on blacklisted individuals to the CBN, ensuring compliance with the Guidelines. Where no individual is blacklisted during a reporting period, a “nil return” should be submitted.

SINGLE OBLIGOR LIMIT REQUIREMENTS FOR MICROFINANCE BANKS IN NIGERIA

Did you know that in addition to commercial and merchant banks, microfinance banks (MFBs) are also required to maintain a single obligor limit? In simple terms, a single obligor limit is the maximum amount that can be lent to a borrower in relation to the lender’s equity capital.

According to the Central Bank of Nigeria’s (“CBN“) MFB guidelines, microfinance banks have the following lending limits:

the maximum loan to any individual borrower, director, or related borrowers should not surpass 1% of the MFB’s shareholders’ fund unimpaired by losses;
for group borrowers, the maximum loan should not exceed 5% of the MFB’s shareholders’ fund unimpaired by losses; and
total insider-related lending should not exceed 5% of the MFB’s shareholders’ fund unimpaired by losses.

These measures aim to regulate MFBs’ risk exposure and ensure the prudent management of funds in line with regulatory standards.

INFORMATION SHARING WITH LICENSED CREDIT BUREAUS

Did you know that borrowers in Nigeria have the right to obtain a free credit report from a credit bureau once a year?

This right is enshrined in the Credit Reporting Act 2017 which also mandates lenders to share information on their loans with licensed credit bureaus. Lenders are also required to use credit reports in their credit assessment processes.

Lenders (including digital lenders) are required by the Central Bank of Nigeria (the “CBN“) to register with credit bureaus and submit customers credit information such as loan repayment history, outstanding debts, and credit utilization with the credit bureau. However, consent from the customers is required before their credit information can be shared with a credit bureau.

TRANSACTION MONITORING AND REPORTING OBLIGATIONS OF FINTECHS IN NIGERIA

Did you know that fintech companies in Nigeria are mandated to implement transaction monitoring and reporting systems to detect and report suspicious activities?

Under anti-money laundering and counter-terrorism financing regulations in Nigeria, fintech companies are required to scrutinize customer transactions either in real-time or at regular intervals to flag anomalies, detect high-risk behaviours, or spot transactions that diverge from typical patterns, for the purpose of identifying and thwarting money laundering, terrorist financing and fraud.

Upon detecting suspicious activities, fintech companies are obligated to file suspicious transaction reports (STRs) or suspicious activity reports (SARs) with the Nigerian Financial Intelligence Unit and other appropriate regulatory authorities. These reports should provide detailed information about the suspicious transaction, including the nature of the activity, the parties involved, the source of funds, and any other relevant details.

Failure to comply with transaction monitoring and reporting requirements can result in fines, regulatory sanctions, suspension or revocation of licenses, and even criminal prosecution.

LIMITS OF CONTACTLESS PAYMENTS IN NIGERIA

Did you know that there are limits to the value of contactless payments in Nigeria?

Contactless payment technology offers a convenient, efficient, and cashless way to pay for goods and services without physical contact or card usage. By simply bringing a bank card, smartphone digital wallet app, or other device close to the vendor’s Point of Sales reader, customers can make purchases easily.

Following the issuance of the Guidelines on Contactless Payments in Nigeria 2023, the Central Bank of Nigeria (the “CBN“) has set the following approved limits for contactless payments in Nigeria as follows:

single transaction limit: maximum of ₦15,000.00 (fifteen thousand naira); and
daily cumulative transaction limit: maximum of ₦50,000.00 (fifty thousand naira).

Transactions exceeding these limits are considered higher-value transactions and require additional verification and authorization. Transactions above the daily cumulative limit will require contact-based technology.