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HOW TO START MICROFINANCE BANK IN NIGERIA
To start a microfinance bank in Nigeria is quite complex if you don’t know the steps. It is one of the hardest businesses to start.
What is a microfinance bank? A microfinance bank is simply known to be any group of company, licensed by the governing bank(Central bank of Nigeria) to give out financial and non-financial services to the public. Microfinance banks usually provide loans, give out securities e.g fund deposits and local money transfers. They serve Nigerians of all classes such as the employed and the unemployed. The quantity of loans given out by the microfinance banks is dependent on the cash-flow density of the business and the recipient of the loan. Loans given out by microfinance banks are classified as Unsecure.
THE SIMPLE REQUIREMENTS TO START A MICROFINANCE BANK IN NIGERIA
Before you start a microfinance bank in Nigeria, there are some things that need to be done to obtain your license to operate: They include:
You are required to write down an application to Governor of the CBN telling him which of the 3 types of microfinance bank you or your organization is interested in. The application should be followed by:
- N50,000 as application fee as unit microfinance bank. N100,000 for state, N250,000 for national bank draft or e-payment in CBN name.
- Deposit of the aforementioned capital requirement of the MFB in an MFB share capital account in relation to CBN. This will be given out with interest to the promoters after the license has been issued.
- Proof that the capital requirement which was paid is acceptable by CBN and not from an illegal trade e.g laundered money.
- Written in details a feasibility report.
- A certificate of capital information in the case of foreign start-up cash.
- Copy of your company’s memorandum and articles of association.
- You are then required to issue out a letter of intent to pay for the subscribed shares of the proposed Microfinance bank by its subscribers.
- Draft out a list of your prospective shareholders, including their address and the address of their bankers as well as the banker’s name.
- Particulars of the prospective board of Governors.
THE WAY MICROFINANCE BANKS GIVE OUT LOANS
Microfinance banks give out loans to the public but it is based on short-term repayment. The least time frame lasts for over 6 months and 12 months. While the maximum timeframe for repaying loans is 24months. Majority of loans offered by the microfinance banks do not pass the limit of N500,000 and do not exceed 1% percent of shareholders money.
TYPES OF MICRO FINANCE BANKS
Before you start a microfinance bank in Nigeria, you must take into consideration that they are 3 types of microfinance banks. They are:
- Unit microfinance bank: This type of microfinance bank needs at least N20million as capital to start up and it is not permitted to operate by opening branches or money centers apart from the main bank office.
- State microfinance bank: This is a lot more higher than the unit microfinance bank. It requires about a N100million in capital to start up. It also requires approval by CBN to operate in the same state when new branches want to open.
- National microfinance bank: This requires the highest cash as start up capital than the first 2 mentioned above. A sum of 2billion naria is required to start this one. It can however operate in all states of the country. Though it must be approved by the CBN for each branch that is to be opened.
REASONS WHY MICROFINANCE BANKS ARE WANTED
To start a microfinance bank in Nigeria, let us take a look at the reasons why microfinance banks are needed in Nigeria.
- There are high demand for affordable loans to micro, small and average sized businesses.
- There is an increase in the population of SME businesses.
- Microfinance banks enable low income earners to save more.
On the completion of this stage, the Central Bank of Nigeria will go through the steps above and proceed to give out an approval in principle(AIP). The issuance of AIP is done after the CBN has interviewed the promoters. In addition, the AIP will be issued if the CBN is satisfied with the quality in 3 months receipt of application. The Microfinance bank will start operation after doing the following:
The documents required to be submitted by the MFB promoters to the CBN are;
- A full copy of the shareholders register
- A valid copy of the share certificate of each shareholder.
- A Form CAC 2 i.e return of allotment, put with the corporate affairs commission.
- Form of corporate affairs commission i.e particulars of the board of directors.
- Memorandum and article of the association including the corporate affairs commission.
- Starting up a statement of affairs audited by an approved firm in the account department in Nigeria.
- Certified valid copies and original copy of the certificate of incorporation.
- One copy of the letter of offer and acceptance of employment by the leading management staff including the management team being confirmed by the CBN.
- Letter of undertaking to follow the rules and regulations governing the microfinance banks.
- A form of CAC describing the location and address of the head office and also the branches of MFB.
On the completion of all the process listed above, the CBN will write to the MFB to start operation after physical inspection of structures has been done. It is required that the MFB informs the CBN when they begin operation. Necessary informations to be noted by promoters however includes: Application Fee for unit MFB N50,000, State-N100,000, National-N250,000. The Licensing fee for unit MFB N100,000, State-N250,000, National-N1million. Change of name unit N20,000, State-N50,000, National-N100,000.
Note that the bank reserves the right not to give out a license to the MFB on how to start up once it is not satisfied after inspection. If a license is not issued, the share capital and interest would be given back to its promoters. When the license is issued out by the CBN to the MFB, the MFB are not allowed to:
Limitations of Microfinance Banks in Nigeria
- Accept public sector deposits except if permitted
- Engage in foreign transactions.
- Participate in a foreign electronic funds transfer.
- Engaging in foreign corporate finance.
- Deal in real estate business.
- Deal in the land for the possible purpose.
- Funding for illicit activities e.g gambling.
- Selling/buying or renting of any kind with directors without the request and approval by the CBN.
Any microfinance bank caught in the aforementioned transaction will have its license taken back. It is regulated by provisions in the banks and financial institutions act BOFIA in 1990.
If the list further above is followed to the core, then you are ready to start a microfinance bank, once approved by the CBN.
The Microfinance bank is regulated by the highest bank(CBN). It holds the right to supervise, approve and revoke MFB who violates its orders or who do not run as expected. It is advisable to be careful when starting up an MFB. If you still need more clarification, you can drop your questions in the comment section. I will respond to all of them.
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