CBN releases 10 requirements for opening a microfinance bank in Nigeria

The Central Bank of Nigeria has released 10 conditions that individuals and corporate entities must satisfy before establishing a microfinance bank. The requirements cover minimum capital, source of funds, board composition and licensing fees across three categories of MFBs.

The conditions are contained in the CBN's Revised Regulatory and Supervisory Guidelines for Microfinance Banks in Nigeria. The regulator said obtaining approval does not automatically allow a microfinance bank to begin operations until further conditions are met.

Capital and fees by category

Prospective owners must provide the minimum paid-up capital prescribed for the category of microfinance bank they intend to establish. The CBN recognises three categories: Unit, State and National.

A Unit MFB requires a minimum paid-up capital of N20 million. A State MFB requires N100 million. A National MFB requires N2 billion.

Applicants must provide satisfactory and verifiable evidence that the required capital has been paid by the proposed shareholders. The CBN requires promoters to confirm that the funds did not originate from bank credit, questionable sources, money laundering or other illicit activities.

Promoters seeking an MFB licence must pay a non-refundable application fee. The fees are N50,000 for a Unit MFB, N100,000 for a State MFB and N250,000 for a National MFB.

Other conditions for approval

Applicants must submit a detailed feasibility report explaining the objectives and justification for establishing the microfinance bank. The report must outline the services to be offered, proposed branch expansion, staff training, management succession and other operational plans.

The proposed MFB must submit financial projections covering five years. The CBN requires applicants to provide expected growth and profitability figures as well as the assumptions supporting those projections.

The CBN must be satisfied that the promoters and proposed management team are fit and proper persons to invest in or manage a financial services institution. The regulator also assesses the quality of management and whether the proposed business has realistic earnings prospects.

Applicants must provide the names, CVs and credentials of proposed board members. For MFBs, at least two board members, excluding executive management, must have banking or related financial industry experience. Directors and management appointments are subject to CBN approval.

Promoters must submit documents including a draft Memorandum and Articles of Association, letters of intent from subscribers and details of the proposed shareholders. The application must also contain the names, addresses and banking details of promoters or proposed shareholders.

Before issuing Approval-in-Principle, the CBN may conduct an appraisal interview with the promoters. The regulator assesses the promoters, management, capital, business prospects and proposed activities before deciding whether to proceed.

Approval is not the final step

Obtaining approval does not automatically mean the MFB can begin operations. The institution must put the required infrastructure, management information systems, internal controls and enterprise-wide risk management procedures in place.

The CBN must also conduct a satisfactory physical inspection of the premises before the MFB is allowed to commence business.

The guidelines show that establishing a microfinance bank in Nigeria requires more than having the required capital. Promoters must demonstrate that their funds are legitimate, their business model is viable, and their proposed management and governance structures meet regulatory standards.

Earlier, Bank78 MFB began operations in Nigeria as a privately owned digital lending institution. The lender said its model draws from the principles of private banking but is tailored to meet the needs of mass-affluent Nigerians seeking secure and high-quality digital banking services.