Are you a banker, or an investor looking to start a microfinance bank in Nigeria and don’t know where to start?
Read this article and download a business plan at the end.
If you want to start a microfinance bank in Nigeria, you will need a good location first things first. Although many businesses can be run online, it is important to have a physical office space. In addition, microfinance businesses must have a certain amount of paid up capital.
A microfinance bank in Nigeria will require a minimum of N20 million to register. This amount is required to meet CBN requirements and cover the cost of office renovations, office furniture, software, CAC registration and other expenses. In addition to the minimum capital required, the bank will also need to raise a certain amount of money in order to begin operating. Startup capital will vary depending on the type of microfinance bank you want to open.
Microfinance banks in Nigeria must meet the requirements and guidelines set out by the CBN. In addition, a license is required if you plan to operate a bank without branches. The CBN has the right to regulate and supervise registered MFBs and can revoke a license if they violate the rules.
Microfinance banks in Nigeria offer a variety of services for their customers. Often, these financial institutions operate in low-income communities and provide small loans and domestic money transfers. Depending on the size of the bank, they may also offer other services, such as deposit accounts and domestic money transfer.
READ – DOWNLOAD MICROFINANCE BANK BUSINESS PLAN WITH FINANCIALS
Locations to start a microfinance bank
Microfinance banks in Nigeria are regulated like commercial banks, but they serve a different segment of the population. Since less than 54% of the population has a bank account, most people who run small businesses have little access to banks. Despite this, there is an increased number of small businesses moving into the formal sector. Many small food retailers have expanded into medium-sized businesses. This means they must pay pensions and taxes. Microfinance banks are better equipped to cater to these businesses as they are closer to the commercial banking system.
There are two basic types of microfinance banks in Nigeria when you want to start a microfinance bank. One type is a state microfinance bank, which requires a paid up capital of N100,000,000 and approval from the Central Bank of Nigeria. The second type is a national microfinance bank. The latter type is licensed nationwide, and can operate in all states of the country.
Regulations for microfinance banks
Microfinance banks are required by law to meet certain regulatory requirements. These requirements include accepting certain types of deposits and offering different types of loans. They are also allowed to engage in certain ancillary services. Besides, they can issue debentures to raise funds.
Microfinance banks are regulated by the Central Bank of Nigeria. This regulatory framework is meant to protect the interests of consumers by ensuring that the banks have adequate capital base, improve profit performance, and liquidity position. The objective is to promote financial inclusion by providing financial services to low-income groups and those who are in need.
Microfinance banks must also be licensed by the Central Bank of Nigeria. It must also adhere to several other laws and regulations. In Nigeria, microfinance banks must be regulated by the Banks and Other Financial Institutions Act 2021. In addition to this, microfinance banks can offer other ancillary financial services.
To become a licensed microfinance bank when you want to start a microfinance bank, you must first submit a formal application to the Central Bank of Nigeria. This application must be accompanied by the application fee. In addition, the Central Bank of Nigeria will require that the microfinance bank deposit the capital required in a share capital escrow account with the Central Bank of Nigeria. When the license is issued, the Central Bank of Nigeria will release the capital without interest to the promoters. It is important to ensure that the capital used to start the bank is from legitimate sources. If the capital is from a foreign source, a feasibility report or a certificate of capital importation must be submitted.
Microfinance banks in Nigeria are regulated by the Central Bank of Nigeria through the Banking and Other Financial Institutions Act. Since the microfinance policy was launched in 2005, the regulatory framework has been revised twice; in 2011 and 2013 and will be reviewed again in March 2020.
MFBs may be a public or a government-owned enterprise. A fully owned government MFB will be a state or local government entity and will collaborate with private entities. The government can own up to 60% of its bank, while private entities can own up to 40% of the bank.
Requirements for staffing a microfinance bank
There are several requirements to set up and staff a microfinance bank in Nigeria. For instance, a Tier 1 MFB is required to have a minimum share capital of 200 million Naira, and must have a minimum of five branches within a state or local government area. A Tier 2 MFB is required to have a minimum capital of 50 million Naira and can only operate in underbanked rural areas.
To operate a microfinance bank in Nigeria, the promoter must first apply for a license. This process is called pre-licensing. The CBN will issue a license to an MFB if it meets certain requirements. In addition, a Microfinance Bank must insure its deposit liabilities with the Nigeria Deposit Insurance Corporation (NDIC). A Microfinance Bank must also obtain fidelity insurance coverage, and meet the requirements prescribed by NDIC. Finally, it must become a member of the National Association of Microfinance Banks in Nigeria (NAMFB) and pay its annual subscription by the 31st of each year. It is also important to note that a Microfinance Bank must follow the prescribed procedures for the appointment of a Managing Director/CEO, as well as
Having qualified staff is important to the success of a microfinance institution. Apart from the required skills, the staff should also be motivated to perform well. Moreover, the employees must be paid well and receive adequate benefits. If the employees are motivated to work hard, the microfinance bank is likely to succeed.
AB Microfinance Bank is a national microfinance bank licensed by the Central Bank of Nigeria (CBN). It has branches in Lagos, Ondo, Ogun, and Anambra States. Its mission is to improve the business opportunities of Nigerian microbusinesses.
A Microfinance Bank in Nigeria must be a member of the National Association of Microfinance Banks (NAMB), maintain a minimum capital, have a sound accounting system, and comply with all CBN guidelines and regulations. If the bank is a foreign institution, it should have a certificate of approval from the regulator of the country of the investor. The bank should also have an appropriate Shareholders’ Agreement and an agreement with a third-party technical services provider.
In Nigeria, there are two types of Microfinance Banks. Tier 1 Unit MFBs are licensed to operate in banked areas with high population density. A Tier 2 Unit MFB is permitted to operate one branch outside of its head office in the same Local Government Area.
Challenges of starting a microfinance bank
Setting up a microfinance bank in Nigeria has many challenges. First, you will need to have sufficient paid-up capital to start operations. In Nigeria, the minimum paid-up capital is N20 million. Second, the country has a limited number of microfinance banks. Less than 12 national microfinance banks exist. This may limit the spread of microfinance banks in the country.
Another challenge that microfinance banks face is the lack of basic infrastructure. This exacerbates the operational challenges of microfinance banks. Since microfinance banks deal with many small clients, transaction costs are usually higher than those of conventional banks. In addition, they must pay for power and water to operate. Additionally, their outreach is constrained by the lack of adequate roads.
The government has recognized the potential of microfinance banks in Nigeria, claiming that 40% of the country’s adult population is economically excluded. This includes those in rural areas and the economically disadvantaged. The government’s Micro Finance policy aims to bring these people into the mainstream financial system.
One challenge facing microfinance banks is the cost of setting up branch offices. While it is possible to establish a branch office, the costs of establishing a physical branch can be prohibitive. A better approach would be to move outside of brick-and-mortar locations and provide service to clients over mobile phone infrastructure. This method would eliminate the need for huge physical infrastructure and high-costs associated with giving low-value loans.
A good microfinance bank needs a solid infrastructure and good risk management processes. A good loan risk-management strategy is critical to the success of a microfinance bank in Nigeria. The government should provide the necessary infrastructure to enable the establishment of a microfinance bank. It should also offer regular training for staff to expose them to critical strategies.
The large informal sector in Nigeria is an added challenge. It can make it difficult for the government to manage the economy. The government must also address unemployment and poverty by making finance available to the informal sector.
Now that you know how to start a microfinance bank in Nigeria, you should get a business plan to kickstart your enterprise.
How To Download Microfinance Bank Business plan Template PDF and Doc (With financial analysis)
Pay the sum of N5000 (Five thousand naira only) to the account detail below:
Name: Oyewole Abidemi (I am putting my name and not our company account so you know I am real and you can trust me, and trace me)
P.S: We can also tailor the Microfinance Bank Business plan to your name, business size, capital requirements, and more to fit your direct needs. Call or message +234 701 754 2853 for inquiries.