Easy Guide on the Financial & Regulatory Requirements for Micro-Finance Bank Licence in Nigeria

1. Introduction

Microfinance Banks (“MFBs”) are subsector players licensed, regulated and supervised by the Central Bank of Nigeria (“CBN”) to provide access to financial services such as micro-savings, micro-credits, transfer services and other financial products targeted at the economically active poor.

The CBN issued the Guidelines for the Regulation and Supervision of Microfinance Banks (“Guidelines”), which has been revised on occasions, including the year 2013. In January 2020, the CBN commenced another review to further address the challenges experienced in the implementation of the revised guidelines of 2011.

2. Categories of MFB Licences and their Financial Requirements

There used to be three categories of licences (unit, state and national licences). However, with the current revision of the Guidelines, there are now the following four (4) categories:

1. Tier 1 Unit MFB (with urban authorization) licensed to operate in the banked and high-density areas, and is allowed to open not more than four (4) branches outside the head office within five (5) contiguous Local Government Areas as approved by the CBN. A Tier 1 Unit MFB requires a N200 Million share capital company (please note that the sum of N200 Million will be deposited with CBN, which sum may be invested by CBN and thereafter refunded to the depositors, with any interest, at the end of the application process, whether Final Licence is granted or not), non-refundable Application fee of N100,000 for the CBN’s Approval-In-Principle, a non-refundable Licensing Fee of N250,000 for Final Licence and, where necessary, a Non-refundable Change of Name Fee of N50,000.
2. Tier 2 Unit MFB (with rural authorization) licensed to operate only in rural, unbanked or underbanked areas, and is allowed to open one (1) branch outside the head office within the same Local Government Area. A Tier 2 Unit MFB requires a N50 Million share capital company (please note that the sum of N50 Million will be deposited with CBN, which sum may be invested by CBN and thereafter refunded to the depositors, with any interest, at the end of the application process, whether Final Licence is granted or not), non-refundable Application fee of N100,000 for the CBN’s Approval-In-Principle, a non-refundable Licensing Fee of N250,000 for Final Licence and, where necessary, a Non-refundable Change of Name Fee of N50,000.
3. State MFB, licensed to operate in one State or the Federal Capital Territory (FCT) and is allowed to open branches within the same State or the FCT. Please note that a State MFB is required to obtain CBN’s approval before opening each new branch or cash centre and it is not permitted to open more than two branches or cash centres in the same Local Government Area unless it has established at least one (1) branch or cash centre in every Local Government Area in the State or the FCT. Please note that a newly licensed State MFB shall not commence operations with more than ten (10) branches. A State MFB requires a N1 Billion share capital company (please note that the sum of N1 Billion will be deposited with CBN, which sum may be invested by CBN and thereafter refunded to the depositors, with any interest, at the end of the application process, whether Final Licence is granted or not), non-refundable Application fee of N200,000 for the CBN’s Approval-In-Principle, a non-refundable Licensing Fee of N500,000 for Final Licence and, where necessary, a Non-refundable Change of Name Fee of N100,000.
4. National MFB, authorized to operate in more than one State including the FCT. A newly licensed National MFB shall not commence operations with more than ten (10) branches. A National MFB requires a N5 Billion share capital company (please note that the sum of N5 Billion will be deposited with CBN, which sum may be invested by CBN and thereafter refunded to the depositors, with any interest, at the end of the application process, whether Final Licence is granted or not), non-refundable Application fee of N300,000 for the CBN’s Approval-In-Principle, a non-refundable Licensing Fee of N1,000,000 for Final Licence and, where necessary, a Non-refundable Change of Name Fee of N250,000.

3. Ownership Requirements

A licence to operate an MFB may be granted to individuals, group of individuals, community development associations, private corporate entities and foreign investors subject to a maximum of 49% shareholding for individuals and aggregate related parties. What the foregoing means is that no individual, group of individuals, their proxies or corporate entities and/or their subsidiaries shall own controlling interest in more than one MFB, except as approved by the CBN.

A financial holding company that intends to set up any category of MFB as subsidiary shall be required to meet the prescribed capital and other requirements stipulated in the CBN Guidelines for MFB. Such new subsidiary can only be registered with the CAC after obtaining the approval of CBN.

Although the focus of this piece is to guide private businesses on the licensing requirements of MFB, we must point out that State or Local Government too can own or co-establish an MFB. Government’s participation in the establishment of an MFB be fully-owned or public-private partnership or government-sponsored Co-operative model or structure.

4. Licensing Requirements

Application for MFB licence shall be in three (3) stages, namely:

1. Pre-licensing Presentation;
2. Approval-in-Principle; and
3. Final License

4.1. Pre-licensing Presentation

Promoters and investors shall be required to make pre-licensing presentation on the business case of the proposed MFBs to the CBN before a formal application for licence. This provision is also applicable to investors acquiring an existing MFB. This presentation revolves around the business plan and the identity of the promoters as well the equity contributors.

4.2. Requirements for Granting Approval-In-Principle (AIP)

A. The promoters of MFBs shall be required to submit a formal application for the grant of licence addressed to the Governor of the Central Bank of Nigeria.

B. The application shall be accompanied with the following:

i. Evidence of payment of non-refundable application fee to the Central Bank of Nigeria;

ii. Evidence of capital contribution made by each shareholder;

iii. Evidence of minimum capital deposit in line with Section 4.2.7 of the CBN Guidelines;

iv. Evidence of name reservation with the Corporate Affairs Commission (CAC);

v. Detailed business plan or feasibility report which shall, at a minimum, include:

a. Objectives of the Microfinance Bank;

b. Justification for the application;

c. Ownership structure in a tabular form indicating the name of proposed investor(s), profession/business and         percentage shareholdings;

d. Sources of funding of the proposed equity contribution for each investor;

e. 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;

f. Organizational structure, showing functional units, responsibilities, reporting relationships and grade of heads of departments/units;

g. Schedule of services to be rendered;

h. Five-year financial projection of the proposed bank indicating expected growth, profitability and the underlying assumptions; and

i. Details of information technology requirements and facilities.

C. For institutional investors, promoters shall forward the following additional documents:

1. Certificate of Incorporation and certified true copies of other incorporation documents.
2. Board resolution supporting the company’s decision to invest in the equity shares of the proposed bank;
3. Names and addresses (business and residential) of owners, directors and their related companies, if any;
4. Audited financial statements & reports of the company and Tax Clearance Certificate for the immediate past 3 years.

D. Draft copy of the company’s Memorandum and Articles of Association (MEMART). At a minimum, the MEMART shall contain the following information:

1. Proposed name of the MFB
2. Objects clause
3. Subscribers to the MEMART
4. Procedure for amendment
5. Procedure for share transfer/disposal
6. Appointment of directors

E. 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;

F. For regulated foreign institutional investors, an approval or a ‘no objection letter’ from the regulatory authority in the country of domicile;

G. Shareholders’ agreement providing terms for disposal/transfer of shares as well as authorization, amendments, waivers, reimbursement of expenses;

H. Statement of intent to invest in the bank by each investor;

I. Technical Services Agreement, where applicable;

J. Detailed Manuals and Policies covering:

1. Credit Policy Manual;
2. Internal Audit Manual;
3. Asset/Liability Management Policy (ALM Policy);
4. Accounting policies and principles;
5. Roles and responsibilities of the senior management officials responsible for financial management
6. Treasury operations, including funds management, vouchers, payroll and procurement;
7. Anti-Money Laundering and Combating Financing of Terrorism (AML/CFT) Policy;
8. Enterprise-Wide Risk Management Framework;
9. Whistle Blowing Policy;
10. Code of Ethics and Business Conduct.

K. Bank Verification Number (BVN) and Tax Clearance Certificate of each member of the Board and significant shareholders.

L. Duly signed resume and valid means of identification for proposed shareholders of proposed MFB

M. Criteria for selecting board members;

N. 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

O. Consolidated statement of account showing the capital contribution for all shareholders;

P. Completed Fitness and Propriety Questionnaire; and sworn declaration of net worth executed by the proposed shareholders, directors and management personnel;

Q. 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.

Although the proposed MFB is required to have a Name Reservation with the CAC before submitting application for AIP, the proposed MFB shall not proceed to complete the incorporation/registration of its name with the CAC until an AIP has been obtained from the CBN in writing, a copy of which shall be presented to the CAC for completion of the incorporation/registration.

4.3. Requirements for Granting Final Licence

Not later than six (6) months after obtaining the AIP, the promoters of a proposed MFB shall apply in writing for the grant of a final licence to the CBN, addressed to the Governor of the Central Bank of Nigeria. The application shall be accompanied by the following:

1. Evidence of payment of non-refundable licensing fee to the Central Bank of Nigeria;
2. Certified true copy (CTC) of Certificate of Incorporation of the bank;
3. CTC of MEMART;
4. CTC of Form CAC 1.1 (Application for Registration of Companies);
5. Evidence of location of Head Office (rented or owned) for the take-off of the business;
6. Schedule of changes, if any, in the Board, Management and Shareholding after the grant of AIP;
7. Evidence of ability to meet technical requirements and modern infrastructural facilities such as office equipment, computers, telecommunications, to perform the bank’s operations and meet CBN and other regulatory requirements;
8. Copies of letters of offer and acceptance of employment in respect of the management team;
9. 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;
10. Comprehensive plan on the commencement of the bank’s operations with milestones and timelines for roll-out of key payment channels; and
11. Board and staff training programme.

5.0. Other Requirements

5.1. Insurance Requirement:

a. Insurance of the MFB’s deposit liabilities with Nigeria Deposit Insurance Corporation (“NDIC”) in compliance with section 15(1) of the NDIC Act 2006.

b. MFB must take out a fidelity insurance coverage up to the level prescribed by the NDIC.

c. Must become a financial member of the National Association of MFBs (“NAMB”) in Nigeria and pay its annual subscription not later than 31^st January of every year.

5.2. Corporate Governance Requirement:

1. To comply with basic requirements as stipulated by the CBN Code of Corporate Governance for MFBs;
2. Where a current employee of a commercial bank or other financial institution is proposed for the position of director in an MFB, the consent of the employer must be given in writing to the CBN
3. To comply with the prescribed requirements and procedure for the appointment of Managing Director/Chief Executive Officer and Departmental Heads who must possess necessary certification in microfinance management from the Chartered Institute of Bankers of Nigeria (“CIBN”) not later than 3 years after assumption of office.
4. To obtain CBN approval for its organizational structure and any subsequent changes

5.3. Conditions relating to funding, accounting and related matters;

5.4 Prudential Requirement

5.5. Rendition of Returns

5.6. Other conditions as may be prescribed by the CBN Guidelines.

6. Conduct of Pre-Licensing Inspection

As a requirement for the grant of final licence, the CBN shall conduct an inspection of the premises and facilities of the proposed bank to, amongst others:

1. Check the physical structure of the office building and infrastructure provided for take-off of the MFB;
2. Sight the original copies of the documents submitted in support of the application for license;
3. Meet with the Board and Management team whose resumes had earlier been submitted to the CBN;
4. Verify the capital contributions of the promoters; and
5. Verify the integration of its infrastructure with the National Payments System.

Where the CBN is satisfied that the MFB has complied with the prescribed requirements, a Final Licence (i.e., Licence) will be issued subject to any terms and conditions prescribed by the CBN.

The Licence may be renewed by paying the necessary renewal fee and satisfying CBN that the MFB has fully complied with the CBN Guidelines for MFBs and other conditions for renewal of licence.

7.0. Upgrade of MFB Licence and Transformation Path

A Tier 2 Unit MFB may transform to a Tier 1 Unit MFB subject to fulfillment of the requirement for a Tier 1 Unit MFB Licence. A Unit MFB that intends to transform to a State MFB shall be required to make a separate application to obtain a State MFB licence, subject to fulfilling stipulated requirements for a State MFB licence.

A State MFB that intends to transform to a National MFB must have at least five (5) branches which are spread across the Local Government Areas in the State of its original operation. It shall also be required to surrender its State MFB license and fulfill other stipulated requirements for a National MFB licence.

Without prejudice to the above transformation path, new promoter(s) may be allowed to apply directly for any category of MFB licence.

Application for an upgrade to Tier 1 Unit, State or National MFB shall be forwarded to the Director, FPRD, with the following supporting documents:

1. Original MFB Licence
2. A copy of the Board’s resolution authorizing the upgrade
3. Evidence showing that the new minimum capital requirement for the desired authorization license has been met.
4. Where there is an injection of capital, relevant documents showing such capital injection shall be required.
5. The proposed organizational structure of the MFB.
6. A copy of the audited financial statements for the last preceding financial year approved by the CBN.
7. Any other document/ information as may be required from time to time by the CBN.

Please contact KORIAT & CO. via admin@koriatlaw.com or 09067842241 if you require any assistance in respect of a micro finance bank licence.