How to obtain a Microfinance Bank License from the Central Bank of Nigeria

Microfinance bank license in Nigeria is obtained from the Central Bank of Nigeria for the carrying on banking services on a small scale. It is a niche targeted at individuals who would not ordinarily have access to finance through the conventional banking system. Like the name implies it provides finance on a micro scale.

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What is a Microfinance bank?

Generally put, a microfinance bank in Nigeria is a category of financial institutions targeted at individuals and small businesses who lack access to conventional banking and related services. Microfinance includes microcredit, the provision of small loans to poor clients, savings and checking accounts, micro insurance, and payment systems, among other services. 

Who is eligible to set up a Microfinance Bank?

Microfinance bank can be established by individuals, groups of individuals, community development associations, private corporate entities or foreign investors subject to a maximum of 49% shareholding for individuals and aggregate related parties.

Who are the target clients of a Microfinance Bank?

Generally, MFBs target the following group of persons:

1. The economically active poor;
2. Low-income households;
3. The un-banked and underserved people, particularly vulnerable groups such as women, youths and the physically challenged; and
4. Informal sector operators, micro-entrepreneurs and subsistence farmers.

CBN Microfinance Bank

Microfinance banks like other commercial banks are regulated by the Central Bank of Nigeria. The CBN periodically releases guidelines and regulations for banks with relation to their registration, licensing, operation and administration. All financial institutions intending to operate in Nigeria are required to be licensed by the CBN.

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Functions of a Microfinance Bank

For the avoidance of doubt, MFBs being a category of banks, are allowed to carry out the following activities according to the CBN guideline:

1. Acceptance of various types of deposits including savings, time, target and demand deposits from individuals, groups and associations; 
2. Provision of credit, housing micro loans, ancillary services such as capacity building on record keeping and small business management and safe custody to its customers;
3. Collection of money or proceeds of banking instruments on behalf of its customers including clearing of cheques through correspondent banks; 
4. Act as agent for the provision of mobile banking, micro insurance and any other services within the geographic coverage of its license; 
5. Provision of payment services such as salary, gratuity, pension for employees of the various tiers of government; 
6. Provision of loan disbursement services for the delivery of the credit programme of government, agencies, groups and individual for poverty alleviation on non-recourse basis;
7. Maintenance and operation of various types of account with other banks in Nigeria;
8. Financing agricultural inputs, livestock, machinery and industrial raw materials to low- income persons; and
9. Provide financial and technical assistance and training to microenterprises.

Categories of Microfinance Banks

For the purpose of obtaining a CBN license to operate a microfinance bank, there are four categories of MFBs an applicant may apply for. They are:

1. Tier 1 Unit MFB:

A Unit Microfinance Bank with urban authorization (Tier 1) is authorized to operate in the banked and high-density areas, and is allowed to open not more than four (4) branches outside the head office within five (5) contiguous Local Governments Areas, subject to the approval of the CBN. 

2. Tier 2 Unit MFB:

A Unit Microfinance Bank with rural authorization (Tier 2) is authorized to operate only in the rural, unbanked or under banked areas, and is allowed to open one branch outside the head office within the same Local Government Area subject to the approval of the CBN. 

3. State Microfinance Bank:

A State Microfinance Bank is authorized to operate in one State or the Federal Capital Territory (FCT). It is allowed to open branches within the same State or the FCT, subject to prior written approval of the CBN for each new branch or cash centre. It cannot open more than two branches in the same Local Government Area (LGA) unless it has established at least one branch or cash centre in every LGA of the State. A newly licensed State MFB is not permitted to commence operations with more than ten (10) branches.

4. National Microfinance Bank:

A National Microfinance Bank is authorized to operate in more than one State including the FCT. A newly licensed National MFB is not permitted to commence operations with more than ten (10) branches.

Application procedure for a Microfinance Bank in Nigeria

Application for a Microfinance Bank License is categorized in three stages, which are as follows:

1. Pre-Licensing Presentation:

Promoters and investors or investors acquiring an existing MFB are required to make pre-licensing presentation on the business case of the proposed MFBs to the CBN before a formal application for license. 

2. Approval – in — Principle:

Application for a license to operate a MFB should be sent to The Governor, Central Bank of Nigeria or The Director, Financial Policy & Regulation Department. The Application should be accompanied by the following documents:

1. Evidence of payment of non-refundable application fee to the Central Bank of Nigeria;
2. Evidence of capital contribution made by each shareholder; 
3. Evidence of minimum capital deposit;
4. Evidence of name reservation with the Corporate Affairs Commission (CAC); 
5. Detailed business plan or feasibility report;
6. Draft copy of the company’s Memorandum and Articles of Association (MEMART);
7. Shareholders’ agreement providing terms for disposal/transfer of shares as well as authorization, amendments, waivers, reimbursement of expenses; 
8. Statement of intent to invest in the bank by each investor; 
9. Detailed Manuals and Policies;
10. Bank Verification Number (BVN) and Tax Clearance Certificate of each member of the Board and significant shareholders;
11. Duly signed resume and valid means of identification for proposed shareholders of proposed MFB;
12. Criteria for selecting board members; 
13. Board composition, directors’ duly signed resumes and valid means of identification; and
14. Consolidated statement of account showing the capital contribution for all shareholders.

Following the receipt of an application, the CBN will communicate its decision to the applicant within 90 days either approving or denying the grant of the AIP.

The proposed bank should not incorporate/register its name with the CAC until an AIP has been obtained from the CBN in writing, a copy of which will be presented to the Corporate Affairs Commission (CAC) for registration.

3. Final License:

Not later than six (6) months after obtaining the AIP, the promoters of a proposed Microfinance Bank will submit an application for the grant of a final license to the CBN. The application will be accompanied by the following documents:

1. Evidence of payment of non-refundable licensing fee to the Central Bank of Nigeria; 
2. Certified true copy (CTC) of CAC incorporation documents (Certificate of Incorporation, MEMART and Form CAC 1.1;
3. Evidence of location of Head Office (rented or owned) for the take-off of the business; 
4. Schedule of changes, if any, in the Board, Management and Shareholding after the grant of AIP;
5. Evidence of ability to meet technical requirements and modern infrastructural facilities such as office equipment, computers, telecommunications, to perform the bank’s operations and meet CBN and other regulatory requirements; 
6. Copies of letters of offer and acceptance of employment in respect of the management team; 
7. List of proposed top management staff and duly signed resume stating their qualification (including photocopies of academic and professional credentials), experience, records of accomplishments and valid means of identification; 
8. Comprehensive plan on the commencement of the bank’s operations with milestones and timelines for roll-out of key payment channels; and 
9. Board and staff training programme.

As a requirement to the grant of Microfinance bank license in Nigeria, the CBN will conduct an inspection of the premises and facilities of the proposed bank to determine its compliance with the relevant requirements.

Registering a Microfinance Institution in Nigeria

Upon readiness to commence operation by the bank, it will inform the CBN in writing and submit same with a copy of the following information:

1. Shareholders’ Register; 
2. Share certificate issued to each investor; 
3. Opening statement of affairs signed by directors and external auditors; 
4. Enterprise Risk Management Framework (ERMF); 
5. Internal control policy; 
6. Minutes of pre-commencement board meeting; 
7. Evidence of integration of their infrastructure with the National Payments System; and 
8. Evidence of ability to meet technical requirements and infrastructural facilities in office equipment, computers, telecommunications, to perform banking operations, render regulatory returns, respond to CBN’s requests and handle customer complaints quickly and efficiently. ix. Board and board committee charters stating the roles and responsibilities of the board and sub-committees.

Latest news on Microfinance Bank in Nigeria

The CBN in May 2023 revoked the license of several Microfinance banks. According to the apex bank, the licenses of the Microfinance banks were revoked because they had either remained inactive, insolvent, failed to render returns, closed shop, or ceased to carry on the type of banking business for which they were licensed for more than six (6) months.

Capital Requirements for Microfinance bank in Nigeria

Applications for microfinance bank license in Nigeria can only be 

	Unit MFB (Tier 1) (N)	State MFB (N)	National MFB (N)
Minimum Capital	200,000,000	1,000,000,000	5,000,000,000
Non-refundable Application fee	100,000	200,000	300,000
Licensing fee	250,000	500,000	1,000,000
Non-refundable change of name fee	50,000	100,000	250,000

Upon granting of license to the bank, the Microfinance bank in Nigeria is expected to display a copy of an MFB’s license in a conspicuous position at its Head Office, branches and cash centers. Every MFB should also display in a conspicuous place at its Head Offices, branches and cash centers, its annualized interest rates and fees.

Microfinance Industry in Nigeria

The microfinance industry in Nigeria is booming and has seen quite a bit of entrants in the past few years, however the newly increased minimum share requirement might stifle new entrants into this market, however this might be a necessity to ensure that only capable players do business in this industry.

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