Introduction
A Micro Finance Bank (“MFB”) is a subsector company in the financial industry licensed by the Central Bank of Nigeria (“CBN”) to carry on the business of providing financial services such as savings and deposits, loans, domestic funds transfer and non-financial services to individuals and Micro, Small and Medium Enterprises (“MSME”) especially in the rural or unbanked areas.
An MFB differs from commercial banks not only because the former cannot do international money transfer but also it cannot deal in foreign currency transactions, etc.
Also, MFB differs from a State-licensed money lender in that the latter is not licensed or supervised by the CBN; and while an MFB can take deposits, a State-licensed money lender cannot take deposits and savings from the public unless such receipts are in satisfaction of a given loan.
It is useful to mention that until recently, money lender companies have not been heavily supervised by regulators as MFBs have been. Please find here the links to useful information about how to set up a microfinance bank and the licensing process for a money lender company in Nigeria.
In Nigeria, there are three (3) categories of MFB that can be licensed by the Central Bank of Nigeria (“CBN”), namely:
(i) Unit MFB (although the CBN has broken this into two tiers: Tier-1 and Tier-2 MFB);
(ii) State MFB; and
(iii) National MFB (click here for more details)
The above classes of MFB have fundamental differences in terms of their respective share capital requirements, applicable costs of incorporation and licensing, number of branches or cash centres and geographical scopes. So, it is important for investors to understand what category of MFB licence would best fit their business objectives and models.
Regulatory Requirements & Filings for Acquisition of MFB
In our experience in responding to enquires and representing clients on the subject, we have identified the following essential requirements (documents and information) for regulatory filing, depending on the purpose, amount of shareholding interest and stage(s) of acquisition of an MFB, as may be deemed necessary by the CBN, the Corporate Affairs Commission (“CAC”), the Federal Inland Revenue Service (“FIRS”), etc.
We have tabulated the documents/information for ease of reference:
| S/N | Particulars of Applications | Regulatory Requirements/Filings |
| 1 | Share Capital Increase (where necessary): Please note that the different categories of MFB have different amounts of share capital requirement as provided by the extant CBN Guidelines for MFBs. Where the share capital of an MFB is less than the required minimum set by the CBN, then, the shareholders must increase its share capital. | In order to increase the share capital of an MFB, there must be the following: (A) Resolution of the MFB authorizing share capital increase; (B) Proof of payment of stamp duty on stamp duty increase to the Federal Inland Revenue Service (“FIRS”); and (C) Certificate of Capital Increase issued by the Corporate Affairs Commission (“CAC”). The above documents must be presented to the CBN for approval. |
| 2 | Capital Injection: Both local and foreign investors are permitted under Nigerian law to invest in an MFB subject to the relevant regulatory filings and approvals. | In order to initiate a capital injection or purchase of an MFB, the MFB is required to present the following to the CBN for prior approval: (A) Investment Contract or Loan Agreement between Purchaser and Fund Provider(s) (if any) provided that the term of any loan agreement must not be less than seven (7) years and such loan must not be from a financial institution in Nigeria; (B) Proof of Inflow into MFB’s account in Nigerian bank (this is usually evidenced by the MFB’s bank statement); (C) Letter from any third-party payer where a payment was made by a third party on behalf of the Fund Provider or Purchaser; Certificate of Capital Importation (“CCI”) where there will be eventual repatriation of capital/dividends (failure of which will invariably lead to the denial of the benefits under Section 15(4) of the Foreign Exchange (Monitoring and Miscellaneous Provision) Act, 1995); or Letter of Non-Repatriation, where the Purchaser does not have intention to repatriate the funds/dividends; and (D) Statement of account of Purchaser or any third-party who makes payment on behalf of Purchaser: The Purchaser’s Statement of Account (or of a Third-party payer) is required by the Capital Verification Committee (“CVC”) of the CBN to confirm that the source of the funds is genuine and passes anti-money laundering and combating financing of terrorism (AML/CFT) tests. |
| 3 | Change of Registered Address of an MFB: The address of an MFB cannot be changed unless with prior approval of the CBN. | In order to change the registered address of an MFB, the following are required: (A) Resolution approving the change of address; Justification for the relocation; (B) Feasibility Report on the new location; Available facilities; Notice of change of address and provision for the existing customers; and (C) Post-incorporation documents from the CAC showing change of address. |
| 4 | Transfer of Ownership and Management Shareholders and management of MFBs are subject to CBN’s screening and approval and so cannot be changed without the apex bank’s approval. Please note that the proposed directors’ CVs as well as their respective filled-out ‘approved persons’ regime questionnaires will be forwarded by the CVC to the Nigerian Deposit Insurance Corporation (“NDIC”) and the Admin Unit of the Other Financial Institutions Supervision Department (“OFISD”) of the CBN for “status report” as part of the directors’ appraisal. If the proposed directors’ names are not in the black books of the Admin Unit and the NDIC, then, their nominations will be recommended by CVC for approval of the Director of OFISD. Please note also that the Management staff are required to have micro-finance certification especially those that have worked in micro-finance businesses. Any proposed management staff with previous record of working for an MFB without obtaining the required certification will be disqualified by the CVC of CBN. Those management staff without previous MFB work experience may be approved subject to obtaining micro-finance certification within three (3) years of the new appointment. | In order to add or change the shareholders of an MFB, the following documents are required: (A) Contract of acquisition detailing consideration amount, value of company based on audited financial statement, etc; (B) Certificate of Incorporation; Memorandum and Articles of Association (“MEMART) of both a corporate Purchaser and the MFB: Please note that no provision should be contained in the MEMART of the Purchaser precluding it from overseas investment or investment in the financial sector. Also, it is helpful if the object clause of the Purchaser relates to financial service sector. (C) Resolutions of the Purchaser and the MFB approving the purchase and the sale of the MFB or its shares respectively; (D) Relevant Resolution of the MFB approving the sale of the MFB to the Purchaser; (E) Document detailing Persons of Significant Control (Persons of Significant Control are individual or corporate shareholders holding 5% shares and above) in the MFB as well those of the Purchaser setting out their names, businesses and residential addresses; (F) Schedule of Existing Shareholders and their shareholdings in the MFB; (G) Statement of Share Capital and Return of Allotment (Please note that the Statement of Share Capital and Return of Allotment has now been replaced by the Status Report of the CAC); (H) Signed Consent Letters by each of the Shareholders agreeing to relinquish their respective shares in the MFB; (I) List of Outgoing Directors and Copy of CAC Document to that effect (This is also shown via the Status Report of the CAC); (J) Proposed organizational structure of the MFB, post-acquisition, showing functional units, reporting relationships, and grade (status) of heads of departments/units including Board Approval for the organizational structure; (K) Five-year Plan, post-acquisition, covering: Capital growth, Branch expansion, Staffing, and Financial projections. (L) Audited financial statements of the MFB for the last three (3) years; (M) List of proposed directors and management staff of the MFB post-acquisition, their CVs, designations and interests they represent, together with the following: – Duly completed copies of the “Approved Persons Regime” questionnaire of the proposed directors/management staff; – Credit report from two (2) Credit Bureaux of the proposed directors/management staff; – Code of conduct forms in respect of the proposed directors/management staff; – Letter of Acceptance by the proposed directors/management staff; – Curricula Vitae of the proposed directors/management staff; – Means of Identification of the proposed directors/management staff; – Letter of non-indebtedness for each of the directors/management staff;- Affidavit of net worth of proposed directors only; – Board Resolution approving the appointment of top management staff. |
Conclusion
The above are the essential regulatory requirements and filings for the acquisition of an MFB in Nigeria.
Please note that the CBN or the CAC may require additional documents if, from the nature of the investment arrangements between the Purchaser and the MFB or other related transactions, such additional documents will be necessary for the assessment and/or approval of any aspect of the proposed acquisition.
The above is for just information alone and does not constitute legal advice. Please contact KORIAT & CO. via admin@koriatlaw.com or 09067842241 if you require any assistance in respect of a micro finance bank licence in Nigeria.
