Nigeria: CBN Governor Highlights Financial Stability Risks from Increasing NBFI and Fintech Transactions

The Governor of the Central Bank of Nigeria (CBN), Yemi Cardoso, has voiced concerns about the rising transaction volumes of Non-Bank Financial Institutions (NBFIs) and Other Financial Institutions (OFIs), underscoring potential risks to financial stability.

This concern was conveyed by Abayomi Arogundade, Acting Director of the Other Financial Institutions Department at the CBN, who represented the CBN Governor at the 10th Meeting of the College of Supervisors for Non-Bank Financial Institutions (CSNBFI) held in Abuja on Monday.

Cardoso noted that NBFIs, which provide financial services without banking licenses, have seen substantial growth in transaction volumes. Unlike traditional banks, these institutions cannot accept deposits, setting them apart from conventional banking entities.

He stated:

“We reiterate the importance of monitoring trends, risks, and innovations of NBFIs/OFIs as their increasing transaction volumes pose major financial system stability risks.

“Fintech loans are one of the most commonly reported innovations. While overall this may appear small in relation to the size of credit by Deposit Money Banks (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, with the platform acting as a financial auxiliary.

“In some cases, however, loans are taken on the balance sheet of these platforms (even if they are short-term), making the platforms 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.”

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

To address these concerns, the CBN has been actively developing frameworks to monitor and manage these emerging risks effectively.