REQUIREMENTS TO START A MICRO-FINANCE BANK IN NIGERIA

Have you ever wanted to own a microfinance bank in Nigeria? If yes, see the
requirements and paper work needed to achieve it. A microfinance bank refers to
any group of people/company, licensed by the central bank of Nigeria (CBN) to
provide financial services and non financial services.

Some of these services include loans, deposits, domestic money transfer among a
wide range of services offered. Some of the beneficiaries targeted in mind for this
service include artisans, fishermen, youths, farmers, citizens, non salaried workers
in the formal and informal sectors of the economy respectively.
The loans are usually of unsecured nature relying mostly on the cash-flow of the
business, as well as the applicants character.
The loans usually dont exceed 6 months, except in special cases like agriculture will
it extend to 12 months. For other projects like property development, it can a bit
further to 24 months but wont exceed that period. The maximum principal amount
will not exceed N500, 000 or 1% of the shareholders fund.
Anyone who wants to establish a microfinance bank in Nigeria should take into
account that they are of 3 types:
(1) Unit microfinance bank with paid up capital of N20million, but without
branches/ cash centers beside the main office.
(2) State microfinance bank with paid up capital of N100million.To operate
within the same state or the FCT subject to written approval by the CBN for each
new branch/cash centre to be opened.
(3) National microfinance bank with paid up capital of N2billion.Can operate all
over the states or the FCT subject to written approval of the CBN for each new
branch/cash centre.
Micro finance Bank Licensing requirements include the following:
(A) Application in writing to the Governor of the CBN indicating which of the 3
categories is being applied for by its promoters. The application should be
accompanied with:
(I) Application fee of N50, 000 for unit, N100, 000 for state, N250,000 for national in
bank draft or e-payment in favour of the CBN.

(II) A deposit of capital requirement of the MFB in an MFB share capital escrow
account with the CBN. This will be released with interest to the promoters after
license issuance.
(III) Evidence that the capital requirement paid is acceptable to the CBN and not
from an illicit trade, laundered money etc.
(IV) Detailed feasibility report
(V) Certificate of capital importation in case of foreign capital.
(VI) A copy of the memorandum of association and the articles of association.
(B) Letter of intent to pay for the subscribed shares of the proposed MFB by its
subscribers.
(C) List of promoters/proposed shareholders, there address as well as the names &
address of their bankers.
(D) Particulars of the proposed board of directors.
What Next?
After this process is followed, the CBN will vet properly all the steps mentioned and
go on to issue an approval in principle (AiP) and after interviewing the promoters.
The AiP shall be granted by the CBN if satisfied with the overall quality within 3
months of receipt of application. The AiP however does not grant permission to
commence operation before the grant of a final license.
An MFB with the AiP shall be granted final operating license and commence
business after satisfying the following conditions:
The promoters will submit the following documents to the CBN:
(i) A copy of the shareholders registers
(ii) A copy of the share certificate of each shareholder
(iii) Form CAC 2 (return of allotment) filed with the corporate affairs commission
(CAC).
(iv) Form CAC 7 (particulars of directors)
(v) Memorandum of association as well as articles of association filed with the
corporate affairs commission.
(vi) Opening statement of affairs audited by an approved firm of accountants
practicing in Nigeria.

(vii) Certified true copies and the original copy of the certificate of incorporation.
(viii) A copy of the letter of offer and acceptance of employment by top
management staff as well as confirmation that the management team as approved
by the CBN is in place.
(ix) A letter of undertaking to comply with all rules and regulations guiding the
microfinance banks
(x) Form CAC 3 showing the location and address of the head office and branches
where applicable.
After this process has been followed, the CBN will write to the MFB to commence
business after physical inspection of structures. The MFB will also need to inform the
CBN on the date of commencement of business. Other information to be noted by
the promoters who want to set up an MFB are some other fees charged.
Application fee for unit MFB N50,000; state N100,000; National N250,000.
Licensing fee for unit MFB N100,000; state N250,000; National N1million.
Change of name for unit N20,000;state N50,000;National N100,000.
The bank reserves the right not to issue a license to the MFB about to be set up
once it is not satisfied with the structures or after their evaluation. Once a licence is
not issued, there share capital and its interest element will be returned back to the
promoters. No MFB shall engage in the following activities once license is given and
business commences:
(1) Accepting public sector deposits except for some permissible activities.
(2) For foreign exchange transactions.
(3) Transaction involving international commercial papers
(4) Clearing house activities
(5) International electronic funds transfer.
(6) International corporate finance
(7) Collecting third party cheques and other instruments for the purpose of clearing.
(8) Dealing in land for speculative purposes.
(9) Dealing in real estate
(10) Leasing, renting, sales/purchases of any kind with the directors, officers,
employees or persons without the approval in writing of the CBN.

(11) Financing of illegal activities such as gambling, firearms etc

Any MFB who partakes in any of these kinds of transaction or as stipulated in the
supervising guidelines regulating microfinance banks will have its license revoked. It
is also regulated by provisions in the banking and other financial institutions act
(BOFIA) as amended 1990.
Once all the above mentioned guidelines has been followed by anyone who intends
to set up a microfinance bank in Nigeria and the CBN is totally satisfied. The
microfinance bank will be set up easily.

Conclusion
Finally,a microfinance bank just like other institutions in the financial system is
highly regulated by the apex body,the CBN.
It reserves the right to supervise, regulate, pry into activities carried out, sanction
and do whatever it deems fit to any financial institution operating in the Nigerian
economy. In, bulk of the profits that microfinance banks get comes from the interest
on loan repayment by its large base of customers since the loans repayment usually
fall under a 12 month/1 year period.
Hence it is highly profitable. Care should be taken however by anyone who wants to
set up one to employ competent staff to minimize risk by properly assessing
applicants before granting loans since it is of unsecured nature. Micro finance banks
have come to stay in Nigeria and it is that easy to set up today.

What's to stop you or I borrowing a large sum of money in Japan, where interest
rates are currently 0.5 per cent, bringing it to the UK and investing it here at, say, 6
per cent, then living happily on the difference?
Angus Macdonald, Strasbourg France
Assuming you are granted a loan in Japan by a lender, there is nothing legal to stop
you investing in the UK as you wish. However, in doing so you must take into
account exchange risk, which means borrowing heavily in one currency when you
income is in another can mean depending on exchange rate fluctuations you lose.
The financial market professionals do this sort of transaction all the time - George
Soros is an example. When he switched funds out of sterling, he knew that a
movement in the rate would more than cover any interest rate changes, which it
did. Ask Norman Lamont and John Major. A few years ago it was fashionable to have
US dollar mortgages, but with income in sterling again you are adding a risk
element. Professionals can, amateurs should not.

Brian Robinson, Brentwood, Essex

In principle, nothing at all. In financial circles this is known as the 'carry trade' and is
very popular with Japanese housewives (they tend to put the money into New
Zealand with interest rates of 8%). The problem that you have is persuading
someone to lend you enough money to enable this to be worthwhile. The risk is that
the GBP/JPY exchange rate will fall so that the pounds you have on deposit will no
longer repay your debts. Thus, banks won't lend you money to do this unless you
have a lot of collateral. Some people believe that the extra money supply made
available by banks lending against cash provided by the carry trade is what has
allowed houses to rise in price by as much as they have. As an aside, Warren Buffett
(possibly the world's most successful investor) has compared the carry trade to
picking up nickels in front of a bulldozer - mildly profitable until you get squashed.
Richard, Sevenoaks, Kent
Regulations
D Mahoney, UK
The fact that most Japanese banks won't lend money to foreigners doesn't help.
sam, Murayama Japan
Japanese banks are very careful about lending money. They usually insist on
knowing the purpose of the loan and refusing if the money is being taken out of the
country. Banks only lend at 0.5% for items like house building, reformation or
purchases.
Stewart Tennyson, Nara, Japan
Is it possible to borrow money from Japanese banks to buy real estate in Australia or
to pay existing mortgages?
Larry Dias, New South Wales, Australia
You can. I know that St George's bank can make such an arrangement for you.
Speak with your real estate agent or banker.
Mr T, Sydney Austrlai
borrowing say 18.5m GBP from Bundas Bank @ 1.5% + 1% tranch fee to convert, if
they call the loan back in you will have to pay another tranch fee and return all the
money, can cost you 10's of thousands of pounds in one day, and cost your bank
135k for the privilege of handling the transaction, so sometimes things go sour,
especially if your country doesn't comply with international banking law as in not
printing more money to bail out the pension funds when they collapse, causing all
foreign lending sources to foreclose on your countries and bank borrowings

David, Lockerbie Scotland