MICROFINANCE BANK LICENSE IN NIGERIA
Obtaining a microfinance bank license in Nigeria requires a lot of steps and procedures, which must be strictly followed. The license is issued by the Central Bank of Nigeria (CBN) pursuant to the provisions of the Banks and Other Financial Institutions Act 2021 and CBN Guidelines for the Regulation and Supervision of MFBs of 2020.
A microfinance bank may be founded by an individual, a group of individuals, a community development organization, a private business entity, or foreign investors, with a maximum individual and combined related party ownership of 49% of the shares. Except as permitted by the Central Bank of Nigeria, no person, group of persons, their representatives, corporations, and/or subsidiaries may own a controlling stake in more than one Micro-Finance Bank.
CATEGORIES OF MICROFINANCE BANKS IN NIGERIA
There are four (4) categories of a Micro-Finance Bank namely:
- Tier 1 Unit Micro-Finance Bank: for this type of Micro-Finance Bank, the Central Bank of Nigeria must approve the opening of no more than four (4) branches outside of the head office within five (5) contiguous Local Government regions for Tier 1 Unit Micro-Finance Banks, which operate in banked and high-density regions.
- Tier 2 Unit Micro-Finance Bank: this type of Micro-Finance Bank is limited to operating in rural, unbanked, or underbanked areas. They are permitted to open one branch outside of their main office in the same Local Government Area, subject to Central Bank of Nigeria clearance.
- State Microfinance Bank: these financial institutions only function in a single state or the FCT. Opening new branches or cash centers within the same State or the FCT is permitted, but only with the CBN’s prior written consent. If it has not already established at least one branch or cash facility in each Local government Area in the State, it would not be allowed to open more than two in the same Local Government Area (LGA). A State MFB that just received a license is not allowed to start up a business with more than ten (10) branches.
- National Microfinance Bank: this category of microfinance institutions operates throughout the FCT as well as multiple States. A National MFB that has just received a license cannot start up a business with more than ten (10) branches.
PERMISSIBLE AND NON-PERMISSIBLE ACTIVITIES OF THE MICROFINANCE BANK
The following services are permissible to be provided by a Micro-Finance bank:
- Acceptance of various types of deposits including savings, time, target and demand deposits from individuals, groups and associations;
- Provision of credit to its customers;
- Provision of housing micro loans;
- Provision of ancillary services such as capacity building on record keeping and small business management and safe custody;
- Issuance of debentures to interested parties to raise funds from members of the public with the prior approval of the CBN;
- Collection of money or proceeds of banking instruments on behalf of its customers including clearing of cheques through correspondent banks;
- Act as agent for the provision of mobile banking, micro-insurance and any other services as may be determined by the CBN from time to time, within the geographic coverage of its licence;
- Appoint agents to provide financial services on its behalf in line with the CBN Agent Banking Guidelines, within the geographic coverage of its licence;
- Provision of payment services such as salary, gratuity, and pension for employees of the various tiers of government;
- Provision of loan disbursement services for the delivery of the credit programme of government, agencies, groups and individuals for poverty alleviation on a non-recourse basis;
- Provision of banking services to its customers such as domestic remittance of funds;
- Maintenance and operation of various types of accounts with other banks in Nigeria;
- Investment of its surplus funds in suitable money market instruments approved by the CBN;
- Operation of micro leasing facilities, microfinance-related hire purchase and arrangement of consortium lending;
- Participate in the CBN Intervention Fund and funds other sources;
- Provision of microfinance-related guarantees for its customers;
- Financing agricultural inputs, livestock, machinery and industrial raw materials to low-income persons;
- Investment in cottage industries and income-generating projects for low-income persons as may be prescribed by the CBN from time to time;
- Provision of professional advice to low-income persons regarding investments in small businesses;
- Issuance of domestic commercial paper subject to the approval of the CBN;
- Provide financial and technical assistance and training to microenterprises; and any other permissible activity as may be approved by the CBN from time to time
A microfinance bank is prohibited from offering the following financial services:
- Foreign currency transactions, except foreign currency borrowings;
- International commercial papers;
- International corporate finance;
- International electronic funds transfer;
- Clearing house activities;
- Collection of third-party cheques and other instruments to clear through correspondent banks;
- Dealing in land for speculative purposes;
- Dealing in real estate except for its use as office accommodation;
- Provision of any facility for speculative purposes;
- Leasing, renting, and sale/purchase of assets of any kind with related parties and/or significant shareholders (five per cent or more of the equity) of the MFB, without the prior written approval of the CBN;
- Financing of any illegal activities; and
- any activity other than those permitted as stated above or as may be prescribed by the Central Bank of Nigeria from time to time
- LICENSING STAGES
Application for Micro-Finance Bank license shall be in three (3) stages, namely:
- Pre-licensing Presentation
- Final License
I- Pre-licensing Presentation
Before submitting a formal application for a license, promoters and investors must give the CBN a pre-licensing presentation on the business case of the proposed microfinance bank.
The Governor of the Central Bank of Nigeria must receive a formal application for the licence from the promoters of the Micro-Finance Bank. The following must be submitted with the application:
- Evidence of payment of non-refundable application fee to the Central Bank of Nigeria;
- Evidence of capital contribution made by each shareholder;
- Evidence of minimum capital deposit in line with Section 4.2.7 of this Guidelines, to be verified by the CBN;
- Evidence of name reservation with the Corporate Affairs Commission (CAC);
- Detailed business plan or feasibility report which shall, at a minimum, include:
- Objectives of the Microfinance Bank;
- Justification for the application;
- Ownership structure in a tabular form indicating the name of proposed investor(s), profession/business and percentage shareholdings;
- Sources of funding of the proposed equity contribution for each investor;
- Where the source of funding the equity contribution is a loan, such shall be a long-term facility of at least 7-year tenor and shall not be taken from the Nigerian banking system;
- Organizational structure, showing functional units, responsibilities, reporting relationships and grade of heads of departments/units;
- Schedule of services to be rendered;
- Five-year financial projection of the proposed bank indicating expected growth, profitability and the underlying assumptions; and
- Details of information technology requirements and facilities.
For institutional investors, promoters shall forward the following additional documents:
- Certificate of Incorporation and certified true copies of other incorporation documents.
- Board resolution supporting the company’s decision to invest in the equity shares of the proposed bank;
- Names and addresses (business and residential) of owners, directors and their related companies, if any
- Audited financial statements & reports of the company and Tax Clearance Certificate for the immediate past 3 years.
- Draft copy of the company’s Memorandum and Articles of Association (MEMART). At a minimum, the MEMART shall contain the following information:
- Proposed name of the MFB
- Objects clause
- Subscribers to the MEMART
- Procedure for amendment
- Procedure for share transfer/disposal
- Appointment of directors
- A written and duly executed undertaking by the promoters that the bank will be adequately capitalized for the volume and character of its business at all times;
- For regulated foreign institutional investors, an approval or a ‘no objection letter’ from the regulatory authority in the country of domicile;
- Shareholders’ agreement providing terms for disposal/transfer of shares as well as authorization, amendments, waivers, and reimbursement of expenses;
- Statement of intent to invest in the bank by each investor;
- Technical Services Agreement, where applicable;
- Detailed Manuals and Policies covering:
- Credit Policy Manual;
- Internal Audit Manual;
- Asset/Liability Management Policy (ALM Policy);
- Accounting policies and principles;
- Roles and responsibilities of the senior management officials responsible for financial management;
- Treasury operations, including funds management, vouchers, payroll and procurement;
- Anti-Money Laundering and Combating Financing of Terrorism (AML/CFT) Policy;
- Enterprise-Wide Risk Management Framework;
- Whistle Blowing Policy;
- Code of Ethics and Business Conduct;
- Bank Verification Number (BVN) and Tax Clearance Certificate of each member of the Board and significant shareholders.
- Duly signed resume and valid means of identification for proposed shareholders of proposed MFB;
- Criteria for selecting board members;
- Board composition, directors’ duly signed resumes and valid means of identification. The size and composition of the board shall comply with the provision of the CBN Code of Corporate Governance for MFBs;
- Consolidated statement of account showing the capital contribution for all shareholders;
- Completed Fitness and Propriety Questionnaire; and sworn declaration of net worth executed by the proposed shareholders, directors and management personnel;
- Any other information that the CBN may require from time to time.
Following the receipt of an application, the CBN shall communicate its decision to the applicant within 90 days. Where the CBN is satisfied with the application, it shall issue an Approval-in-Principle (AIP) to the applicant.
The promoters of a planned microfinance bank must submit an application to the CBN for the issuance of a final licence, addressed to the Governor of the Central Bank of Nigeria, no later than six (6) months after receiving the AIP. The following documents must be included with the application:
- Evidence of payment of non-refundable licensing fee to the Central Bank of Nigeria;
- Certified true copy (CTC) of the Certificate of Incorporation of the bank;
- CTC of MEMART;
- CTC of Form CAC 1.1 (Application for Registration of Companies);
- Evidence of the location of the Head Office (rented or owned) for the take-off of the business;
- Schedule of changes, if any, in the Board, Management and Shareholding after the grant of AIP;
- Evidence of ability to meet technical requirements and modern infrastructural facilities such as office equipment, computers, and telecommunications, to perform the bank’s operations and meet CBN and other regulatory requirements;
- Copies of letters of offer and acceptance of employment in respect of the management team;
- List of proposed top management staff and duly signed resume stating their qualification (including photocopies of academic and professional credentials), experience, records of accomplishments and valid means of identification;
- Comprehensive plan on the commencement of the bank’s operations with milestones and timelines for roll-out of key payment channels; and Board and staff training programme.
The Central Bank of Nigeria must perform an inspection of the proposed bank’s facilities and premises before issuing a final license, among other things, to:
- Check the physical structure of the office building and infrastructure provided for the take-off of the MFB;
- Sight the original copies of the documents submitted in support of the application for license;
- Meet with the Board and Management team whose resumes had earlier been submitted to the CBN;
- Verify the capital contributions of the promoters; and Verify the integration of its infrastructure with the National Payments System.
FINANCIAL REQUIREMENTS FOR OBTAINING A MICRO-FINANCE BANK LICENSE
The official financial requirements for the four categories of Micro-Finance Bank are as follows:
Non-refundable application fee
Non-refundable licensing fee
Non-refundable Change of Name Fee
The Central Bank of Nigeria reserves the right to periodically evaluate the minimum capital requirements for each category of the Micro-Finance Bank.
The Bank shall refund the amount deposited to the applicant along with the investment income, if any, after deducting administrative costs and tax on the income, depending on whether a license is granted or not. The investment of the Share Capital Deposit by BOFIA is subject to the availability of investment instruments.
The Central Bank of Nigeria oversees the microfinance banks in Nigeria. It has the authority to sanction and take any other action it deems suitable about any microfinance bank that disobeys its directives or operates improperly. Microfinance banks have the authority to accept deposits and disburse loans, but unlike commercial banks, they are not permitted to participate in a variety of international activities. The Banking and Other Financial Institutions Act gives the Central Bank of Nigeria exclusive authority to oversee microfinance bank operations in Nigeria.
By Banking & Finance Law Team at Resolution Law Firm