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.
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..
Licensing
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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