How to Start a Microfinance Bank in Nigeria

Microfinance banks provide micro loans to low income customers. The banks provide essential money management advice to poor.
They facilitate banking experience to low income earners in a community. The bank offer group, relationship based services and operate similar to mainstream banks.
Their range of services includes savings deposit, local fund transfer, small loans and insurance. The banks are predominantly found in low income areas, ghettos and rural areas. The bank could be localized, operate few state branch or National.
Why Micro Financing
Microfinance banks were setup to provide banking services to the un-banked. Their aim is to reduce poverty and provide money management services.
They are structured to aid economic development and growth. Such institutions are regulated and accredited by the countries central bank.
They provide supervisory service, framework and policy implementation. The policies are aimed at deposit protection, clarification of operational services.
A major advantage to investors is small startup capital and private ownership structure.
  • Reduce poverty
  • Provide money management services
  • Aid economic development
  • Provide supervisory service
  • Small startup capital
  • Private ownership structure.
microfinance bank
Customer Demography
The customer demography for microfinance banks are low income earners. The banks target vulnerable groups and under-served locals.
Others are the physically challenged, micro-investors, women and informal sector. Customers include market women, small scale merchants, store attendants, junior government staff and drivers.
They service mechanics, vulcanizers, petty traders, students and artisans.
  • Vulnerable groups
  • Under-served locals
  • Physically challenged
  • Micro-investors
  • Women
  • Informal sector
  • Low income earners
Regulatory and Supervisory Guidelines for Microfinance Banks in Nigeria
Operational Prohibition
The microfinance banks are not allowed to accept public sector deposits or conduct foreign exchange transactions. They are prohibited from clearing house activities, international fund transfer and international commercial papers.
They cannot accept third party checks and finance illegal activities. Real estate activities are strictly prohibited.
  • Can’t accept public sector deposits
  • Conduct foreign exchange transactions
  • Prohibited from clearing house activities
  • International fund transfer
  • international commercial papers
  • Can’t accept third party checks
  • Can’t finance illegal activities
  • Can’t fund Real estate activities
Accepted Activities of Microfinance Banks
The banks can provide micro guarantees, pay and receive interests based on existing guidelines. They could supervise credit schemes, purchase or arrange consortium lending and receive refinancing from CBN.
The bank can invest surplus funds in treasury bills and maintain accounts in Nigerian commercial/retail banks. The banks could provide ancillary services, loan disbursement and payment services.
They are mandated to collect banking instruments from customers and issuance of redeemable debentures. More functions are provision of credit to groups/individuals and acceptance of different types of deposits.
Finally they need to provide support low income persons in purchase, supply and investment matters.
  • Can supervise credit schemes
  • Arrange consortium lending
  • receive refinancing from CBN
  • investing surplus funds
  • maintain accounts
  • provide ancillary services
  • loan disbursement
  • Payment services..
Who can own Microfinance Bank?
A group, association, foreign investors, private corporate investors and individuals could establish a microfinance bank. Controlling interests are strictly limited to only one MFB. 
Categories of Microfinance Banks
There are three categories of MFB with different legal requirements. We have the national MFB, state MFB and Unit MFBs.
NMFBs are authorized to operate in more than one state. While the unit is localized to one branch and SMFB operate only within a state. The paid-up capital is N20 million (naira) unit microfinance bank (UMFB), N100 million state (SMFB) and N2 Billion national microfinance bank (NMFB).
  • Unit Microfinance Bank
  • State Microfinance Bank
  • National Microfinance Bank
Licensing Fees
Investors interested in starting an MFP need to submit a written application. Submit a business plan and feasibility study. The report should highlight objectives, justification, services, 5 years financial projection and expansion plan.
There are some applications and licensing fees regarding UNFBs, SMFBs and NMFBs.  The fees are subject to change and revision by the CBN.
Non-refundable application fees are Units N50, 000, State N100, 000, National N250, 000.Non-refundable licensing fees Unit N100,000, state N250,000, National N1, 000,000. Change of name fees N20, 000, N50, 000 and N100, 000 as appropriate.
Funding Sources
The funding sources are through shareholders, debentures, grants and loans. Others are savings, deposits, interests, fees and commissions.  
Management Team
The managing director or executive director should posses 8 years post qualification experience. They should also undergone micro financing education.
Make sure your departmental heads are adequately qualified. The provisions allow 5-7 directors and executive directors at CBNs discretion.
The directors should be approved by CBN and have fixed tenor of 5 years. The top management team should have chartered institute of bankers of Nigeria certification.
Insurance Coverage
Insurance compliance includes fidelity insurance and should comply with deposit insurance schemes. Another requirement is membership of a national association of MFBs.


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