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Microfinance banks are quite common in Nigeria and this is because they play a key role in the financial sector. They offer small scale banking services to those who cannot be covered by the traditional banks. There are a couple of top Nigerian microfinance banks and they include Kuda microfinance bank, Lapo microfinance bank, Fairmoney microfinance bank, VFD microfinance bank and Accion microfinance bank.
In Nigeria, the regulatory body responsible for the operations of a microfinance bank is the Central Bank of Nigeria (CBN) and in this article, we will be considering what it takes to obtain a microfinance bank license.
What is a Microfinance Bank?
According to CBN, a microfinance bank (MFB), unless otherwise stated, shall be construed to mean any company licensed by the CBN to carry on the business of providing financial services such as savings and deposits, loans, domestic fund transfers, other financial and nonfinancial services to microfinance clients. Microfinance clients here are the economically active low-income earners, low-income households, the un-banked and under-served people; in particular, vulnerable groups such as women, persons living with disabilities, youths, microentrepreneurs, informal sector operators, subsistence farmers in urban and rural areas.
Types of MFB License
To operate a microfinance bank, there are various types of licenses required and they are grouped into four (4), namely:
Tier 1 MFB license
This category of license can be used to operate in banked and high-density regions, with a maximum of four (4) branches outside the main office within five (5) Local Government Areas closely linked or sharing the same borders.
Tier 2 MFB license
This license is used in unbanked or rural areas with a maximum of one branch outside the main office within the same local government area.
State microfinance bank license
A state MFB license enables the holder to operate in just one state or Federal Capital Territory (FCT) and can have branches in that state but not more than one branch in a local government area except it has at least one branch in every local government area in that state.
National microfinance bank license
This can be operated in more than one State including the FCT. Please note that a newly licensed National MFB cannot commence operations with more than ten (10) branches.
Who Can own a Microfinance bank?
A microfinance bank can be owned by individuals, group of individuals, community development associations, private corporate entities and foreign investors.
Can one Form of Microfinance Bank be Transformed into Another Type?
Yes, one form of Microfinance bank license can be transformed into another form of license. For example, a Tier 2 microfinance bank license can be transformed into a tier 1.
What are the Licensing Stages for a Microfinance Bank?
Licensing for a microfinance bank is grouped into 3 stages and they are;
- Pre-licensing presentation
- Approval in principle (AIP)
- Final license
Requirements for Pre-licensing Presentation
Promoters and investors are expected to make a pre-licensing presentation on the business case of the proposed MFBs to CBN before a formal application for license can be made.
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