How to start and run a successful Microfinance bank in Nigeria
February 20, 2021
Microfinance bank – Like any other entrepreneur, you have a dream you’d wish come to fruition within the shortest period.
No doubt, investment into the finance sector could be a profitable one, however does not come without bottlenecks, challenges and hard times like other businesses.
If you can imagine it, you can achieve it, if you can dream it, you can become it. So said “William Arthur Ward.”
Nothing is practically impossible so long you have a resilient and persistent mindset over it.
It’s already assumed you have interest in setting up a Microfinance bank in Nigeria, you are probably looking to be acquainted with firsthand information going into this, you’re checking out for knowledge sake may be? if this sounds like you, this guide will do justice to your puzzles.
For the record, as an entrepreneur who has the guts, Microfinance bank is worth your best shots.
Understanding the concept of Microfinance bank
A microfinance bank (MFB) is any company licensed by the Central Bank of Nigeria (CBN) to render financial services which include savings, accepting deposits, giving loans and domestic fund transfer. As well non-financial services to its customers.
Apparently except from being involved in international fund transfers, settlement for goods and services on behalf of customers abroad (Letter of credit, Bills for collection etc), clearing third party cheques and few exceptions, microfinance banks are almost in equal capacity as the commercial banks today.
However, there are unique features that differentiate a microfinance bank from commercial banks etc, these include;
- Its ability to give small loans and accept little deposits
- Its loan process does not involve an asset based collateral
- Its operations is termed very simple.
Not ruling out regulatory requirements.
The Central Bank of Nigeria had something in mind when she gave in to creation of microfinance banks in Nigeria, these reasons are termed the objectives of microfinance.
Objective of microfinance bank
- It makes financial services available to a huge segment of potentially productive Nigerian population, who ordinarily won’t have access to financial services.
- To make a smooth service delivery by the institutions to micro, small and medium entrepreneurs.
- By the process of mobilizing savings, it contributes and makes for a rural transformation.
- To create employment opportunities while enhancing productivity.
As a prospective investor into this market, it becomes pertinent to be abreast about the prospective customers, who they are, what they want and how to meet those needs, make profit to stay in business, this is the only way you may get it right.
MFB target customers are;
- The economically active poor in the society
- Low income individuals and households
- Think of the unbanked and the under financially served populace. They are usually vulnerable, which constitute; women, youths and physically challenged persons.
- Micro-entrepreneurs, subsistent farmers and informal sector operators.
There are capacities under which you can establish a microfinance bank, this business may not be ideal for everyone who wishes to, but must meet or fall within certain standard.
Things you must not do as MFB in Nigeria
As a microfinance bank operator in Nigeria, there are things you are not expected to do, violating such regulatory rules may have your license withdrawn, these include but not limited to;
- International money transfer
- You are not authorized to collect or clear a third party cheque
- International corporate finance
- Real estate participation
- You are not expected to finance terrorism, money laundry or purchases of fire arms.
- You must not participate in forex etc
Microfinance bank can be established by the following people;
- Group of individuals
- Community development associations
- Private corporate entities as well foreign investors.
How to get a micro finance license and categories available
Establishing a microfinance bank entails that you are properly informed of the underlying factors and structures in the scheme of processes.
This will enable you have a first-hand view of what you actually intend to go into, the financial resources required, limitations, documentation and scope of operational environment.
On this note, make good to understand that Microfinance licenses are of different categories.
#1 A unit MFB license
When you apply for this category, kindly be informed that your operational geography is restricted to a particular location only and may not exceed such environment.
Acquiring this license goes with a cost of N20,000,000 (Twenty million naira) only.
#2. The state MFB license
A state license gives you the leverage to operate, establish branches and cash centers around and within the state.
Your license does not approve having a branch or cash centers outside the state in which you apply to commence your initial operations.
To this cause, you are required to pay N100, 000,000 (One hundred million naira) only as a paid-up capital.
#3. National MFB license
Then comes the almighty license, when you wish to operate anywhere in Nigeria, this seems to be the ideal license you should go for appropriately.
There’s no limit to where you can establish a branch or cash centers, you are as free to explore all nooks and crannies of the country like a waving flag.
However, you should budget a paid-up capital requirement of N2 billion naira only.
- Depending on the type of license, you will be required to pay application fee ranging from N50k, N100k and N250k for unit license, state license and national license respectively.
- Copy of “Memorandum and Article of association”
- There’s usually a capital requirement deposit being made to CBN
- Having made the deposit, kindly attach proof of payment.
- If the funding is coming from abroad, kindly attach the capital importation certificate.
- Shareholders list, showing their names and addresses
- The assumed board of directors details fully attached
Having submitted the required documents, CBN will have to review your application and grant approval all things been equal within 3 months of this application.
Note, your application should be directed to the “Governor Central Bank of Nigeria or The Director, Financial Policy & Regulation Department.”
Getting the operating license properly
It a usual practice that approval comes before the operating license when looking to start a microfinance bank in Nigeria.
You will have to submit the below documents too
- Share holder register (a copy)
- Copies of share certificates of all the shareholders
- Form CAC2
- Form CAC3
- Form CAC7
- “Memorandum and Article of association”
- Duly audited statement of affairs as approved by Nigerian accountant firm
- Certified copy of “Certificate of incorporation” (Original copy)
- Your compliance letter to the microfinance bank regulatory rules
- Copies of letter of offer and acceptance of employment by top management staff.
It’s expected that CBN will make a physical inspection of the business structure/premises before issuing the operating license finally.
Having obtained your license, what next? Operation commences in earnest.
You may need the following to start the business properly
- It’s assumed you have office space already being inspected by CBN prior issuing your certificate.
- Provide adequate security since the major stock in trade is money
- Hire competent hands to manage the administrative and operational departments
- Hire field marketers
- Launch your business
- Go all out for your immediate customers who can be found at the town markets.
It’s a business that involves money, you need to harness the office structure to ensure there’s no easy break in for thieves and random criminals.
You may have to build a cash vault, the vault should only be accessed by authorized individuals.
On no account should one person access the vault at a time, should be accessed by minimum of 2 persons.
Hire competent administrators
You should higher administrators who have experience in banking, by advertising opening you can attract such persons.
Check their CVs, years of experience in banking probably, ask critical questions and possibly request a reference from their previous employer.
To serve as an administrator, the employee should have at least attain a managerial level in his previous employment.
Example: Business development manager, Head of operations previously etc.
Ensure the employees have guarantor’s forms duly signed, these forms should be controlled and issue by your legal department.
The essence of guarantors form is to guard against fraud and other criminal related activities.
The form should state clearly a level of indebtedness a guarantor stands to incur should the person he guarantees causes your business loss of funds, either through theft or other criminal activities.
A guarantor failing to pay the bank in full capacity of the ascertained amount stole by the employee guaranteed should be aware that such action is tantamount or attract legal consequences.
Thus, this section must be clearly spelt out to convey detailed understanding to guarantors who wish to sign, in a situation where they have little or no confidence in the prospective employee, it’s advisable not to sign.
Launch your business
You may launch the latest microfinance bank in town by simply organizing a union with nearby business owners, women, youths, low income earners, unbanked and under banked in the locality etc
During the union, you should be able to communicate how going into business with the bank should benefit them and why they should talk to their loved ones to do same.
Organize radio campaign to reach more people in the locality and create awareness.
While you start receiving response and patronage from these customers, endeavor to treat them likes kings and queens, this has proved to be the most effective referral marketing strategy ever.
Employ an internal control/auditor
You don’t give people money without situating checks and balances.
An internal control officer has a duty to go through the books every day.
He checks the transactions being treated and tickets as well to ensure that no penny has been misplaced either by commission or omission.
An internal control is the police of the bank who checkmates against fraud by doing a daily call-over of the books of original entries.
Otherwise there will be misplacement and misappropriation of funds on a very large scale.
As you can see, starting a microfinance bank in Nigeria is subject to affording the regulatory documents and financial requirements depending on the type of license you wish to access.
The more network areas you wish to cover, the higher the price, however comes with advantage of having a wide range operational base.
Raphael Orji is a freelance writer, professional blogger and a content marketing consultant. I work with small businesses, startups and entrepreneurs in building their brand image with high quality blogging and content marketing strategy.
In need of highly purposeful driven articles that will resonate with your audience,
Want this kind of article that engages, converts and compels your readers to buy from you,
If you want search Engines like Google, Bing and Yahoo to send and open the floodgates of readers to your website/blog on daily basis,
Want to rank your website/blog
Head over to my Hire Me page and see which of my services you’d like to have.