We covered the meaning of microfinance bank, types of microfinance banks in Nigeria, requirements for setting up microfinance bank and the limitations of microfinance banks in Nigeria.
INTRODUCTION
The Microfinance Policy, Regulatory and Supervisory Framework was issued December 15, 2005 and revised in 2011 to, among others, increase financial inclusion rate in the country, improve access to financial services for the economically active poor, pursue poverty eradication as well as mainstream the informal microfinance sub-sector into the formal financial system. The policy established microfinance banks as the crucial vehicle for the attainment of these goals.
Microfinance banks were expected to provide access to financial services such as micro-savings, micro-credits, transfer services and other financial products targeted at the economically active poor. These services have, over time, evolved to include the transmission of government’s developmental initiatives. The CBN, in 2013, issued the Revised Regulatory and Supervisory Guidelines for Microfinance Banks in Nigeria, to address challenges observed in the implementation of the Microfinance Policy of 2005 and emerging developments in the industry. The Guidelines sought to promote rapid and sustainable growth of the microfinance industry, leveraging on global best practice in microfinance banking. The current review seeks to engender strong and financially sustainable microfinance banks, enhance the safety and soundness of the microfinance sub-sector.
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The Guidelines shall be read in conjunction with the provisions of the CBN Act, the BOFIA, other subsidiary legislations made under the Acts, as well as written directives, notices, circulars, frameworks and other guidelines that he CBN and other regulators in the financial services sector have issued or may issue from time to time. The Guideline covers categories of microfinance banks, ownership and licensing requirements, permissible and prohibited activities, funding, corporate governance, prudential and anti-money laundering requirements, amongst others.
Obtaining a Microfinance Bank (MFB) license in Nigeria depends on the category of microfinance bank one seeks to operate. Regulated by the Central Bank of Nigeria (CBN), the setting up of a microfinance bank must be in absolute compliance with the principles provided for by the CBN as all financial institutions seeking operations in Nigeria must be licensed by the CBN.
Definition
A microfinance bank refers to a mini or non-commercial bank licensed by the Central Bank of Nigeria (CBN) to provide financial services and non-financial services. The CBN is the government agency in charge of licensing microfinance banks in Nigeria.
Microfinance is a category of financial services targeting 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; microinsurance; and payment systems, among other services. Microfinance services are designed to reach excluded customers, usually poorer population segments, possibly socially marginalized, or geographically more isolated, and to help them become self-sufficient.
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Types of Microfinance Banks in Nigeria
The CBN guidelines classify Microfinance Bank into 3 categories:
Unit Microfinance Bank: This type of microfinance bank requires at least N20,000,000 (Twenty Million Naira as a capital base to start up and it is not permitted to operate by opening branches or money centers apart from the main bank office.
State Microfinance Bank: This is a lot higher than the unit microfinance bank. It requires a minimum of N100,000,000 (One Hundred Million Naira) in the capital base to start. It requires approval by the Central Bank of Nigeria to operate in the same state when a new branch wants to open.
National Microfinance Bank: This requires the highest cash as startup capital than the first two mentioned above. A sum of N2,000,000,000 (Two Billion Naira) is required to start a microfinance bank in this category. It can, however, operate in all states of the country, although it must be approved by the CBN for each branch that is to be opened.
Requirements for Setting up Microfinance Bank Business
The various licensing requirement of microfinance bank in Nigeria includes the followings:
- Must be registered with CAC as to carry out microfinance business in Nigeria.
- Application in writing to the Governor of the Central Bank of Nigeria indicating which of the three categories is being applied for by its promoters. The said application should be accompanied by an application fee.
- A deposit of capital requirement of the microfinance bank in a microfinance bank share capital escrow account with the Central Bank of Nigeria. This will be released without interest to the promoters after the license has been issued.
- Evidence that the capital requirement paid is accepted to the Central Bank of Nigeria and not from illicit trade, laundered money etc.
- Detailed feasibility report and certificate of capital importation in case of foreign capital.
- A copy of the Memorandum and Articles of Association of the company.
- A letter of intent to pay for the subscribed shares of the proposed microfinance bank by its shareholders.
- List of promoters/proposed shareholders, their addresses, as well as the names and address of their branch
- And finally, particulars of the proposed board of directors.
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Upon submission of the various documents, the Central Bank of Nigeria will properly go through all the steps mentioned and go on to issue an approval in principle after interviewing the promoters. The approval in principle shall be granted by the Central Bank of Nigeria if satisfied with the overall quality within three months of receipt of the application. However, the approval in principle does not grant permission to commence operation before the grant of a final license. A microfinance bank with the Approval in Principle shall be granted a final operating license and commence business after satisfying the CBN’s conditions by submitting the requisite documents:
- A full copy of the shareholders’ register
- A valid copy of the share certificate of each shareholder
- A form CAC 2 i.e., return of allotment filed with the Corporate Affairs Commission
- Form of Corporate Affairs Commission i.e., particulars of the board of directors
- Memorandum and article of association filed with the Corporate Affairs Commission
- The opening statement of affairs audited by an approved firm of accountants practicing in Nigeria
- Certified valid copies and original copy of the certificate of incorporation
- One copy of a letter of offer and acceptance of employment by the leading management team
- Letter of undertaking to follow the rules and regulations governing the microfinance bank in Nigeria
Upon successful completion of the above process, the Central Bank of Nigeria will write to the microfinance bank to commence business after physical inspection of the structure. The microfinance bank will need to inform the Central Bank of Nigeria on the date of commencement of business. It is important to note that the Central Bank of Nigeria reserves the right not to issue a license to the microfinance bank if it is not satisfied with the structures of the proposed microfinance bank after the evaluation. Once a license is not issued, the capital and its interest will be returned back to the promoters.
Limitations of Microfinance Banks in Nigeria
A microfinance bank cannot do any of the followings:
- Accept public sector deposit except if permitted
- Engage in foreign transactions
- Participate in foreign electronic funds transfer
- Engage in foreign corporate finance
- Deal in the real estate business
- Dealing in land for speculative purposes
- Funding for illicit activities e.g. gambling
- Selling/buying or renting of any kind with directors without the request and approval by the Central Bank of Nigeria
Conclusion:
The microfinance bank is regulated by the Central Bank of Nigeria. It holds the right to supervise, approve, and do whatever it deems fit to any microfinance bank that violates its orders or who do not run as expected. The microfinance banks have the power to collect a deposit and give loans, but cannot engage in various international transactions like commercial banks. It is only the CBN that is empowered by virtue of the Banking and Other Financial Institutions Act to regulate microfinance bank activities.