A Microfinance Bank (MFB) is any company licensed by the Central Bank of Nigeria (CBN) to carry on the business of providing financial services such as savings and deposits, loans, domestic funds transfer and non-financial services to Microfinance clients. MFBs in Nigeria are regulated by the Central Bank of Nigeria by virtue of the Bank and Other Financial Institutions Act.
CATEGORIES OF A MICROFINANCE BANK
If you are looking to register a microfinance bank in Nigeria, then there are four
Tier 1 Unit Microfinance Bank:
A Tier 1 unit microfinance bank is licensed to operate in urban and density banked areas and are allowed to have not more than 5 branches within 5 contiguous Local Government areas in a state subject to the authorization of the CBN.
The minimum share capital of a Tier 1 unit microfinance bank is ₦200,000,000 (Two Hundred Million Naira).
Tier 2 Unit Microfinance Bank:
A Tier 2 unit microfinance bank is required to have a share capital of at least 50,000,000 (fIfty million naira) and only authorized to operate in the rural, unbanked or underbanked areas. They are also permitted to open one branch office outside the head office within the same Local Government Area.
State Microfinance Banks:
State Micro-Finance Banks are licensed to operate within a particular state and are allowed to have multiple branches and cash centers within the state subject to prior approval from the CBN. A MFB with a state-wide license must have a minimum share capital of ₦1,000,000,000 (One Billion Naira).
National Microfinance Bank:
National Microfinance Banks have a nationwide spread and can operate in multiple states including the federal Capital territory with multiple branches and cash centers within those states subject to prior approval from the CBN. National MFBs are required to have an authorized share capital of not less than ₦5,000,000,000 (Five Billion Naira).
WHO CAN ESTABLISH A MICROFINANCE BANK IN NIGERIA?
Microfinance banks can be established by
- individuals,
- group of individuals,
- community development associations,
- private corporate entities
- foreign investors.
- The State or Local Government
PERMISSIBLE ACTIVITIES OF MICROFINANCE BANKS IN NIGERIA
An MFB shall be allowed to engage in the provision of the following services to its clients:
- Acceptance of various types of deposits including savings, time, target and demand deposits from individuals, groups and associations;
- Provision of credit to its customers;
- Provision of housing micro loans;
- Provision of ancillary services such as capacity building on record keeping and small business management and safe custody ;
- Issuance of debentures to interested parties to raise funds from members of the public with the prior approval of the CBN;
- Collection of money or proceeds of banking instruments on behalf of its customers including clearing of cheques through correspondent banks;
- Act as agent for the provision of mobile banking, micro insurance and any other services as may be determined by the CBN from time to time, within the geographic coverage of its licence;
- Appoint agents to provide financial services on its behalf in line with the CBN Agent Banking Guidelines, within the geographic coverage of its licence;
- Provision of payment services such as salary, gratuity, pension for employees of the various tiers of government;
- 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;
- Provision of banking services to its customers such as domestic remittance of funds;
- Maintenance and operation of various types of account with other banks in Nigeria;
- Investment of its surplus funds in suitable money market instruments approved by the CBN; 7
- Operation of micro leasing facilities, microfinance related hire purchase and arrangement of consortium lending;
- Participate in CBN Intervention Fund and funds other sources;
- Provision of microfinance related guarantees for its customers;
- Financing agricultural inputs, livestock, machinery and industrial raw materials to low- income persons;
- Investment in cottage industries and income generating projects for low-income persons as may be prescribed by the CBN from time to time;
- Provision of professional advice to low-income persons regarding investments in small businesses;
- Issuance of domestic commercial paper subject to the approval of the CBN;
- Provide financial and technical assistance and training to microenterprises; and
- Any other permissible activity as may be approved by the CBN from time to time
NON PERMISSIBLE ACTIVITIES OF MICROFINANCE BANKS
The CBN has outlined non-permissible activities for micro-finance banks. This means that MFBs are prohibited from engaging in such activities. They include the following financial services:
- Foreign currency transactions, except foreign currency borrowings;
- International commercial papers;
- International corporate finance;
- International electronic funds transfer;
- Clearing house activities;
- Collection of third party cheques and other instruments for the purpose of clearing through correspondent banks;
- Dealing in land for speculative purposes;
- Dealing in real estate except for its use as office accommodation;
- Provision of any facility for speculative purposes;
- Leasing, renting, and sale/purchase of assets of any kind with related parties and/or significant shareholders (five per cent or more of the equity) of the MFB, without the prior written approval of the CBN;
- Financing of any illegal activities; and
- any activity other than those permitted as stated above or as may be prescribed by the Central Bank of Nigeria from time to time
WHAT ARE THE LICENSING REQUIREMENTS FOR MICROFINANCE BANKS IN NIGERIA?
The requirements depend on the type of Micro-finance bank license you wish to apply for. The first thing to note however is that the application for a microfinance bank license is in three (3) stages.
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Pre-licensing stage:
The promoters & investors of a proposed Microfinance Bank are required to make a Pre-licensing presentation on the Business case of the proposed Microfinance Bank to the Central Bank of Nigeria before a formal application for a license. This provision is also applicable to investors seeking to acquire an existing Microfinance Bank.
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The Approval in Principle stage (AIP):
The promoters of Micro-finance banks are expected to submit a formal application made to the Governor of the Central Bank of Nigeria indicating the exact category of Microfinance Bank to be established. The Approval-in-Principle does not grant permission to commence operation before grant of Final license and usually takes an estimated period of 3-6 months before it is granted. This application is usually accompanied by the following:
- Evidence of the payment of the prescribed non-refundable application fee to the CBN.
- Evidence of Capital Contribution by each of the shareholders.
- Evidence of a minimum capital deposit in line with the CBN Guidelines to be verified by the CBN.
- Evidence of company name reservation with the Corporate Affairs Commission (CAC).
- A detailed Business plan/Feasibility report (consult your lawyer on the required contents of a Microfinance Bank Business plan as prescribed by the CBN Guidelines).
- For regulated foreign Institutional investors, an approval or a ‘no objection’ letter from the regulatory authority in the foreign investor’s country of domicile.
- A copy of the proposed bank’s Shareholder’s Agreement.
- A statement of an intent to invest in the bank by each investor.
- A technical services agreement where applicable (Digital Banking).
- The Bank Verification Number (BVN) and Tax clearance certificate of each member of the board of directors and shareholders of the proposed bank.
- Duly signed resume & valid means of identification for the proposed bank’s shareholders and directors if any.
- The criteria for selecting the proposed bank’s board members.
- The processing of an AIP application from the date of completing the application takes at least 90 days. The grant of an AIP will entitle the promoters to register the bank with the Corporate Affairs Commission upon the presentation of the AIP from the CBN.
- Detailed manuals & policies covering the proposed bank’s Credit policy manual, Whistle-blowing policy, Enterprise Risk Management Framework, Code of Ethics/Business Conduct, Asset/liability management policy, Anti-Money Laundering Combating the Financing of Terrorism (AML/CFT) policy.
For Institutional/Corporate Investors, promoters shall forward the following documents:
- It’s Certificate of Incorporation and other relevant Incorporation documents.
- A copy of its Board Resolution supporting the company’s decision to invest in the equity shares of the proposed bank.
- Names & addresses of owners, directors & their related companies if any.
- Audited Financial statements and reports of the company along with a Tax clearance certificate for the immediate past 3 years.
- A copy of the proposed Microfinance Bank’s draft MEMART (Memorandum & Articles of Association).
- A written and duly executed undertaking by the bank’s promoters that the bank will be adequately capitalized for the volume & character of its business at all levels.
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Final Licensing Stage
The promoters of a Microfinance Bank should within 6 months after obtaining an Approval-In-Principle, apply for a grant of final license in writing to the Governor of the Central Bank of Nigeria.This application usually takes an estimated timeline of about 3-6 months before it is granted. The following documents should be attached to the application:
- Evidence of payment of non-refundable licensing fee to the Central Bank of Nigeria.
- Certified true copy (CTC) of Certificate of Incorporation of the bank;
- CTC of MEMART.
- CTC of Form CAC 1.1 (Application for Registration of Companies).
- Evidence of location of Head Office (rented or owned) for the take-off of the business.
- Schedule of changes, if any, in the Board, Management and Shareholding after the grant of AIP.
- 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.
- Copies of letters of offer and acceptance of employment in respect of the management team.
- 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.
- Comprehensive plan on the commencement of the bank’s operations with milestones and timelines for roll-out of key payment channels; and
- Board and staff training programme.
WHAT ARE THE POST-LICENSING REQUIREMENTS AFTER GRANT OF MICRO-FINANCE BANK LICENSE?
After the grant of final license, there are some post-licensing requirements which a micro-finance bank must comply with. The bank should consult its legal department on the operational compliance to be complied with. Some of them include;
- Corporate Governance requirements for Microfinance Banks.
- Operational requirements for CBN Intervention funds.
- Lending guidelines.
- AML/CFT Compliance requirements.
- Single obligor limits.
- Operational requirements and controls.
- Cyber Security compliance.
- Requirements for Microfinance Bank Share Capital increase.
- Conditions for the revocation of a Microfinance Bank license etc.
CONCLUSION
Registering a microfinance bank gives you the access to provide operate a digital bank and provide a variety of fintech services. If you require more guidance on the steps and procedure on how to register a microfinance bank, do not hesitate to contact us and we would be happy to guide you through the entire process.
