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Board structure of Tier 2 or 1 microfinance bank (the “Tier 2 or 1 MFB”) is critical to the bank’s existence and growth, as microfinance banks in Nigeria’s financial services sector is being repositioned for more effective financial inclusion.

We had considered regulatory criteria for appointing directors of Tier 2 and 1 MFB in Nigeria. Such criteria include fitness or competence test as well as propriety or integrity and suitability test.

As envisioned in Central Bank of Nigeria’s (“CBN”) 2015 revised assessment criteria for approved persons’ regime for financial institutions.

Benefits of having a clear board structure include shareholders’ proper understanding of the roles of and reasons for appointing executive and non-executive directors as well as Independent non-executive directors (“independent directors”) to the board of Tier 2 or 1 MFB.

A well structure board will ensure that at least one independent director is a point of contact for shareholders’ grievances. Independent directors effect balance of interests in the board’s deliberations and resolutions.

Generally, a structured board of directors (the “board”) will include a board chairman, managing director, independent director, non-executive and executive directors provided that the minimum is not less than 5 directors.

Together with a minimum of 2 Board committees, defined tenure and, clear remuneration policy.

Board Committees

A Tier 2 or 1 MFB is required to have at least 2 board committees namely:

  • committee responsible for the oversight of risk management and audit functions.
  • board governance and nominations committee

CBN has shown increased interest in risk management in entities under its regulatory dragnet. In year, 2020, CBN introduced Nigerian payments system risk and information security management framework (the “framework”) with the objectives to:

  • identify and address sources of systemic risks within Nigerian Payments System landscape;
  • establish sound governance arrangements to oversee risk management framework by ensuring that risks are identified, monitored and treated;
  • establish clear and appropriate rules and procedures to carry out risk-management objectives;
  • employ resources necessary to achieve payments system’s risk management objectives; and
  • integrate risk management into decision-making processes of Scheme Boards and Working Groups under PSV 2020 (Payment system vision 2020).

The Framework has increased the board’s oversight functions respecting payment systems risk and information security management in Teir 2 or 1 MFB.

Board committees must have a charter which should be submitted to CBN for approval while the chairman of the board will not be a member or chair any board committees.

Non-executive directors shall serve as heads or chairs of all board committees.

Tenure of the Board

Non-executive directors (“NEDs”), independent directors and, executive directors (“Eds”) shall serve on the board for a maximum of 3 terms of 4 years each. That is, a period not exceeding an aggregate of 12 years.

A CEO’s tenure shall be in accordance with the terms of engagement with Tier 2 or 1 MFB but subject to a maximum period of 10 years.

CEO’s tenure may be broken down into periods not exceeding 5 years at a time.


CBN Code of Corporate Governance (“CBN’s CCG”) requires Tier 2 or 1 MFB to align its board remuneration with the bank and shareholders’ long-term interests.

The board must disclose compulsory remuneration policy to shareholders in the annual report. Provided that remuneration should be sufficient to attract, retain and motivate executive officers of the Tier 2 or 1 MFB.

Remuneration policy shall be weighed against Tier 2 or 1 MFB’s interest not to pay excessive remunerations to any directors.

Should remuneration be linked to performance, it shall be designed in such a way as to prevent excessive risk taking.

A Committee of independent directors shall determine remuneration of EDs and, EDs must not receive sitting allowances or directors’ fees.

Remunerations of NEDs that include independent directors’ will be limited to directors’ fees, sitting allowances for board or board committee meetings and reimbursable travel and hotel expenses.


Schedules of directors’ meeting may be published annually or bi-annually but in no event, less than quarterly, to enable Tier 2 or 1 MFB and each director manage expectations and schedules.

Success of a Tier 2 or 1 MFB depends on board effectiveness. Regulators and shareholders should ensure that directors enjoy clear board structure in order to reap returns on investment that benefit all stakeholders.

Osita Enwe heads SRJ’s Fin Tech, Education law and Agribusiness law practice groups


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