What is a Microfinance Bank ?
A microfinance bank 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.
Who can set up a Microfinance Bank in Nigeria?
Microfinance banks can be established by individuals, groups of individuals, community development associations, private corporate entities, or foreign investors subject to a maximum of 49% shareholding for individuals and aggregate related parties.
What Categories of Microfinance Bank licences are available?
Microfinance bank licences are categorized into the following based on capital requirements and geographical scope:
National Microfinance Bank Licence
A microfinance bank in this category can operate in multiple states in the country including the Federal Capital Territory (FCT) and must meet the minimum paid up capital requirement of NGN 5 billion. It should be noted that only a State microfinance bank may apply for a National microfinance bank licence; a direct application for the National microfinance bank licence by a new sector participant or Unit microfinance bank licence holder is not permissible. A newly licensed National microfinance bank is not permitted to commence operations with more than ten (10) branches.
State Microfinance Bank Licence
A microfinance bank in this category may operate multiple branches within one state or the FCT. It cannot open more than two branches in the same Local Government Area (LGA) unless it has established at least one branch or cash centre in every LGA of the State. A newly licensed State microfinance is not permitted to commence operations with more than ten (10) branches. The minimum paid up share capital of a State microfinance bank is NGN 1 billion.
Tier 1 Unit Microfinance Bank
A Unit Microfinance Bank with urban authorization (Tier 1) is authorized to operate in the banked and high-density areas and is allowed to open not more than four (4) branches outside the head office within five (5) contiguous Local Governments Areas, subject to the approval of the CBN.
Tier 2 Unit Microfinance Bank
A Unit Microfinance Bank with rural authorization (Tier 2) is authorized to operate only in the rural, unbanked or underbanked areas, and is allowed to open one branch outside the head office within the same Local Government Area subject to the approval of the CBN.
LICENSING PROCEDURE
Application for a Microfinance Bank Licence is categorized in three stages, which are as follows:
1. Approval – in — Principle
Submission of application for grant of MFB license with the required documents. Following the receipt of an application, the CBN will communicate its decision to the applicant within 90 days either approving or denying the grant of the Approval in Principle (AIP).
The grant of the AIP is a condition precedent for registration at the Corporate Affairs Commission (CAC). The proposed bank should not incorporate/register its name with the CAC until an AIP has been obtained from the CBN in writing, a copy of which will be presented to the CAC for registration.
2. Operating License:
Not later than six (6) months after obtaining the AIP, the promoters of a proposed Microfinance Bank will submit an application for the grant of a final license to the CBN.
As a requirement to the grant of Microfinance bank license in Nigeria, the CBN will conduct an inspection of the premises and facilities of the proposed bank to determine its compliance with the relevant requirements.
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