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.
What distinguishes MFBs’ from deposit money banks are:
(1)The smallness of loans advanced and/or savings collected. (2)The absence of asset-based collateral. (3)Simplicity of operations.
What are the categories of MFBs’ in Nigeria?
As at the time of writing this article, in April, 2021 and based on the recent reform, there are three (3) categories available to promoters based on geographical spread:
(a) A Unit MFB licensed to operate in one location. It shall be required to have a minimum paid-up capital of N50million (Tier 2) and 200 million (tier 1);
(b) A State MFB licensed to operate within a specific state or F.C.T. and can open branches or cash centers within the same state or the F.C.T. subject to a prior written approval of the Central Bank of Nigeria. It shall be required to have a minimum paid-up capital of N1billion;
(c) A National MFB licensed to operate in more than one state including the Federal Capital Territory and can open branches in all states of the Federation and the F.C.T. subject to a prior written approval of the Central Bank of Nigeria. It shall be required to have a minimum paid-up capital of N5 billion.
LICENSING REQUIREMENTS FOR MFBS’
The various licensing requirement of MFBS’ in Nigeria includes the followings:
Application in writing to the Governor of the Central Bank of Nigeria or The Director, Financial Policy & Regulation Department.
- Indicating which of the three categories/tiers is being applied for by its promoters. The said application should be accompanied by the prescribed application fee.
- A refundable 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 financial flows.
- Detailed feasibility report and certificate of capital importation in case of foreign capital.
- A copy of the proposed 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.
- And finally, particulars of the proposed board of directors.
Upon submission of the various documents, the Central Bank of Nigeria , if satisfied, will issue an approval in principle (AIP) after interviewing its 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 AIP shall be granted final operating license and commence business after satisfying the CBN’s conditions by submitting the requisite documents below:
List of documents the promoters are required to submit to the CBN to obtain the final license include the followings:
- A full copy of the shareholders’ register
- A valid copy of the share certificate of each shareholder
- A form CAC 2A i.e. return of allotment filed with the Corporate Affairs Commission, form CAC 7A, FORM CAC 1.1, extract of status report as the case may be.
- 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
- Original copy of the certificate of incorporation or certified true copy as the case may be.
- 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 MFBS’ in Nigeria.
- Particulars of address being Form CAC3 or extract of status report as the case may be, i.e., describing the head office and also the branches, if any of the MFB.
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 business premises.
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 business premises of the proposed microfinance bank after its extensive evaluation. Once a license is not issued, the capital and its interest will be refunded back to its promoters.
RESTRICTIONS ON MICROFINANCE BANKS OPERATIONS IN NIGERIA:
A microfinance bank cannot do any of the followings:
- Accepting public sector deposit except if permitted
- Engaging in foreign transactions
- Participating in foreign electronic funds transfer done by approved IMTO’S.
- Engaging in foreign corporate finance
- Dealing 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 without the request and approval by the Central Bank of Nigeria
Applications for setting up an MFB in Nigeria are addressed to The Governor, Central Bank of Nigeria or The Director, Financial Policy & Regulation Department.
Please note, these are not exhaustive requirements, as the CBN and the CAC continuously reform its policies and updates its regulations and requirements.
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