Have you ever wanted to own a microfinance bank in Nigeria? If yes, see the requirements and paper work needed to achieve it. A microfinance bank refers to any group of people/company, licensed by the central bank of Nigeria (CBN) to provide financial services and non financial services.
Some of these services includes loans,deposits,domestic money transfer among a wide range of services offered. Some of the beneficiaries targeted in mind for this service includes artisans, fishermen, youths, farmers, citizens, non salaried workers in the formal and informal sectors of the economy respectively.
The loans are usually of unsecured nature relying mostly on the cash-flow of the business,as well as the applicants character.
The loans usually don’t exceed 6 months,except in special cases like agriculture will it extend to 12 months.For other projects like property development,it can a bit further to 24 months but wont exceed that period. The maximum principal amount will not exceed N500,000 or 1% of the shareholders fund.
Anyone who wants to establish a microfinance bank in Nigeria should take into account that they are of 3 types:
(1) Unit microfinance bank – with paid up capital of N20million,but without branches/ cash centres beside the main office.
(2) State microfinance bank – with paid up capital of N100million.To operate within the same state or the FCT subject to written approval by the CBN for each new branch/cash centre to be opened.
(3) National microfinance bank– with paid up capital of N2billion.Can operate all over the states or the FCT subject to written approval of the CBN for each new branch/cash centre.
(A) Application in writing to the Governor of the CBN indicating which of the 3 categories is being applied for by its promoters.The application should be accompanied with:
(I) Application fee of N50,000 for unit,N100,000 for state,N250,000 for national in bank draft or e-payment in favour of the CBN.
(II) A deposit of capital requirement of the MFB in an MFB share capital escrow account with the CBN. This will be released with interest to the promoters after licence issuance.
(III) Evidence that the capital requirement paid is acceptable to the CBN and not from an illicit trade,laundered money etc.
(IV) Detailed feasibility report
(V) Certificate of capital importation in case of foreign capital.
(VI) A copy of the memorandum of association and the articles of association.
(B)Letter of intent to pay for the subscribed shares of the proposed MFB by its subscribers.
(C) list of promoters/proposed shareholders,there address as well as the names & address of their bankers.
(D) particulars of the proposed board of directors.
After this process is followed,the CBN will vet properly all the steps mentioned and go on to issue an approval in principle (AiP) and after interviewing the promoters.The AiP shall be granted by the CBN if satisfied with the overall quality within 3 months of receipt of application.The AiP however does not grant permission to commence operation before the grant of a final licence.
An MFB with the AiP shall be granted final operating licence and commence business after satisfying the following conditions:
(i) A copy of the shareholders register
(ii) A copy of the share certificate od each shareholder
(iii) Form CAC 2 ( return of allotment) filed with the corporate affairs commission (CAC).
(iv) Form CAC 7 (particulars of directors)
(v) Memorandum of association as well as articles of association filed with the corporate affairs commission.
(vi) Opening statement of affairs audited by an approved firm of accountants practicing in Nigeria.
(vii) Certified true copies and the original copy of the certificate of incorporation.
(viii) A copy of the letter of offer and acceptance of employment by top management staff as well as confirmation that the management team as approved by the CBN is in place.
(ix) A letter of undertaking to comply all rules and regulations guiding the microfinance banks
(x) Form CAC 3 showing the location and address of the head office and branches where applicable.
After this process has been followed,the CBN will write to the MFB to commence business after physical inspection of structures. The MFB will also need to inform the CBN on the date of commencement of business. Other information to be noted by the promoters who want to set up an MFB are some other fees charged. Application fee for unit MFB N50,000;state N100,000;National N250,000. Licensing fee for unit MFB N100,000;state N250,000; National N1million. Change of name for unit N20,000;state N50,000;National N100,000.
The bank reserves the right not to issue a licence to the MFB about to be set up once it is not satisfied with the structures or after their evaluation.Once a licence is not issued,there share capital and its interest element will be returned back to the promoters.No MFB shall engage in the following activities once licence is given and business commences:
(1) Accepting public sector deposits except for some permissible activities.
(2) For foreign exchange transactions.
(3) Transaction invoving international commercial papers
(4) Clearing house activities
(5) international electronic funds transfer.
(6) international corporate finance
(7) collecting third party cheques and other instruments for the purpose of clearing.
(8) Dealing in land for speculative purposes.
(9) Dealing in real estate
(10) leasing,renting,sales/purchases of any kind with the directors,officers,employees or persons without the approval in writing of the CBN.
(11) financing of illegal activities such as gambling,firearms etc
Any MFB who partakes in any of this kinds of transaction or as stipulated in the supervising guidelines regulating microfinance banks will have its license revoked. It is also regulated by provisions in the banking and other financial institutions act (BOFIA) as amended,1990.
Once all the above mentioned guidelines has been followed by anyone who intends to set up a microfinance bank in Nigeria and the CBN is totally satisfied. The microfinance bank will be set up easily.
Finally,a microfinance bank just like other institutions in the financial system is highly regulated by the apex body,the CBN.
It reserves the right to supervise,regulate,pry into activities carried out,sanction and do whatever it deems fit to any financial institution operating in the Nigerian economy.In,bulk of the profits that microfinance banks get comes from the interest on loan repayment by its large base of customers since the loans repayment usually fall under a 12 month/1 year period.
Hence it is highly profitable. Care should be taken however by anyone who wants to set up one to employ competent staff to minimize risk by properly assessing applicants before granting loans since it is of unsecured nature. Micro finance banks have come to stay in Nigeria and it is that easy to set up today.