Withdrawal of 132 Microfinance Bank Licences: The Role of the NDIC and the Way Forward

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By Francis Agunbiade Esq, ACIS, ACTI, ACIPM

On Tuesday, 23rd day of May, 2023, the Central Bank of Nigeria (CBN), acting within its Executive Functions published in the Federal Government Official Gazette, the revocation of the operational licenses of 132 Microfinance Banks, 4 Primary Mortgage Institutions and 3 Finance Houses, over several breaches of their licensing terms and conditions. This has sent shockwaves throughout the financial system, regarding the short-term and long-term implications on depositors’ funds.

The banking industry has well-documented history of failures, both globally and locally. The phenomenon of bank’s inability to meet its obligations to depositors, termed bank failure, comes with the business. Before the establishment of the Nigeria Deposit Insurance Corporation in through the promulgation of Decree No. 22 of 15th June 1988, customers had very little avenue for relief during failures. However, succour came for depositors with the advent of the Nigeria Deposit Insurance Corporation as a Federal Government Corporation established under Section 1 of the NDIC Act 2006 with its functions provided for under Section 2 of the Act. This provides a statutory and regulatory framework for the orderly resolution of failed banking institutions and the protection of depositors’ funds.

Where a bank’s license is revoked by the Central Bank of Nigeria (CBN), the funds held in the failed bank are subject to the provisions outlined by the Nigeria Deposit Insurance Corporation (NDIC) Act. The NDIC, as the Deposit Insurer, plays a critical and fundamental role in the recovery of funds from the Failed Banks. The NDIC has the statutory authority to collaborate with other relevant authorities and institutions to facilitate the recovery and distribution of such funds to depositors. The relevant provisions of the NDIC Act that address the retrieval of funds from a failed bank are as follows:

  1. Deposit Insurance Coverage: Section 20 of the NDIC Act establishes the Deposit Insurance System and specifies the coverage provided to depositors. The Act states that a depositor shall receive from the Corporation as provided under Section 2(1), a maximum amount of N200,000.00 from the Deposit Insurance Fund of licensed banks or N100,000.00 from the Deposit Insurance Fund of other licensed Deposit-Taking Financial Institutions.
  1. Transfer to another insured Institution: Section 21 of the NDIC Act states that deposit may be transferred to another insured institution that shall at its discretion require proof of claim from all depositors with the failed insured institution. This is laudable because this provision ensures that depositors have a greater chance of recovering their funds.
  1. Management and restructuring of failing Insured Institutions: Section 38 of the NDIC Act gives the NDIC power to take over the management of the failing insured institution, direct specific changes, arrange a merger or any other legal actions until its financial position has substantially improved.
  1. Liquidation of Failed Banks: Section 40 of the NDIC Act outlines the procedure for liquidation of Failed Banks. When a bank’s license is revoked, the NDIC is deemed as the Provisional Liquidator by the Federal High Court, who takes over the bank’s assets and liabilities. The Liquidator is responsible for collecting the bank’s assets, including the funds held by the bank, and distributing them to depositors and other creditors in accordance with the provisions of the Act.
  1. Claims Authentication and Payment: Section 41 of the NDIC Act provides for the authentication (by publishing in National Newspapers for affected persons to forward claims) and payment of depositors’ claims. The Act empowers the NDIC to verify the claims of depositors and determine the amount of compensation to be paid based on the amount realised from the liquidation. The NDIC may require depositors to provide necessary documentation and evidence to support their claims.

In conclusion, this is a welcome development as the NDIC acts as a safeguard to depositor’s funds in Banks and other Institutions. In order to retrieve their funds in accordance with the NDIC Act, depositors of a failed bank are expected to follow the instructions and procedures outlined by the NDIC. This includes filing a claim with the NDIC, providing the necessary documentation and evidence to support the claim, and cooperating with the NDIC in the authentication process. The NDIC will assess the claims and determine the eligible amount of compensation based on the insured limit. Once the claims are verified, the NDIC will make arrangements for the payment of compensation to the depositors.


FRANCIS AGUNBIADE is a Legal Practitioner practising in Abuja.

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