Establishing A Micro-Finance Bank in Nigeria; The Feasibility Report.

The micro-finance policy, regulatory and supervisory framework for Nigeria was introduced to galvanize and empower the poor and vulnerable people by increasing their access to the factors of production.

The policy seeks to significantly enhance the latent capacity of the poor for entrepreneurship through the provision of micro-finance services to enable them to engage in economic activities and be more self-reliant, increase employment opportunities, improve household income and create wealth. In essence, the policy is about providing financial services to the poor who are traditionally not included by the conventional financial institutions.

The micro-finance policy recognizes the existing informal institutions like the Esusu/ Alajo that is, the daily /monthly monetary contributions by market women and business men and seeks to bring them within the supervisory preview of the central bank of Nigeria (CBN), in order not to only enhance the monetary stability but also to expand the financial infrastructure of the country to meet the financial requirements micro and small-scale enterprises (MSE’s).

The small size of loan advanced and /or savings collected, the absence of asset-based collateral and simplicity of operations are some of the basic features of the modern-day micro-finance banks in Nigeria.

Micro-finance bank actually is a result of the consolidation policy of the central bank of Nigeria on community banks which were not well capitalized, lack technical expertise and oriented towards lending based on the cash flow and character of clients.

The present micro-finance policy provides for three (3) categories of micro-finance banks in Nigeria namely

(1) Unit micro-finance bank – with paid up capital of twenty million naira (N 20,000,000), but without branches/ cash centres beside the main office.

(2) State micro-finance bank – with paid up capital of one hundred million naira (N 100,000,000). To operate within the same state or the FCT subject to written approval by the CBN for each new branch/cash centre to be opened.

(3) National micro-finance bank– with paid up capital of two billion naira (N 2,000,000,000). Can operate all over the states or the FCT subject to written approval of the CBN for each new branch/cash centre.

For micro-finance banks licensed to operate as a unit bank, also known as community banks, they can only operate branches or cash centres within a local government and the minimum paid –up capital for this category of banks is twenty million naira (N 20,000,000), per branch while for micro-finance banks licensed to operate in a state or the federal capital territory, the minimum paid-up capital is two billion naira (N 2,000,000,000).

A Microfinance Bank license will be issued by the CBN if it is satisfied that the under-listed conditions are met:

– Application in writing to the Governor of the CBN indicating which of the 3 categories is being applied for by its promoters.

The application should be accompanied with:

– Application fee of fifty thousand naira (N 50,000) for unit MFB, one hundred thousand naira (N 100,000) for state and two hundred and fifty thousand naira (N 250,000) for national in bank draft or e-payment in favour of the CBN.
– A deposit of capital requirement of the MFB in a MFB share capital escrow account with the CBN.
– Evidence that the capital requirement paid is acceptable to the CBN and not from an illicit trade, laundered money etc.
– A detailed feasibility report
– Certificate of capital importation in case of foreign capital.
– A copy of the memorandum of association and the articles of association.
– Letter of intent to pay for the subscribed shares of the proposed MFB by its subscribers.
– List of promoters/proposed shareholders, their addresses as well as the names & addresses of their bankers.
– Particulars of the proposed board of directors.

Micro – Finance Banks (MFBs) offer financial and non-financial services which include, but are not limited to accepting deposits, granting mainly unsecured loans, local money transfer services for farmers, traders, artisans, fishermen and non-salaried workers.

Many Nigerians, for numerous reasons are unbanked and lack access to formal financial services. The results of the Enhancing Financial Innovation & Access (EFInA) access to financial services in Nigeria 2012 survey showed that 34.9 million adults representing 39.7% of the adult population of Nigeria were financially excluded. Only 28.6 million adults were banked representing 32.5% of the adult population.

Billions of Naira circulate through the informal sector and this has a negative impact on the country’s economic growth and development. The Enhancing Financial Innovation & Access (EFInA) access to financial services in Nigeria 2012 survey revealed that 23.0 million adults save at home. If 50% of these people were to save N 1,000 per month with a bank, then up to N 138 billion could be incorporated into the formal financial sector every year.

A survey carried out by Enhancing Financial Innovation & Access (EFInA) Access to Financial Services in Nigeria in 2014 revealed that 2.6 million Nigerian adults representing 2.8 percent, currently have a micro-finance bank account.

Further findings showed that an additional 31.5 million adults said that they would like to have a micro-finance bank account, Enhancing Financial Innovation & Access (EFInA) revealed at a Financial Inclusion Conference in Lagos.

This report seeks ascertain the financial viability of establishing a state-wide Micro-finance Institution licensed by the central bank of Nigeria (CBN) to provide affordable banking services for low income earners, micro, small and medium scale enterprises in Lagos state.

Table of Contents

EXECUTIVE SUMMARY 1.0 Business Overview 1.1 Description of the Business 1.2 Vision and Mission Statement 1.3 Business Objective 1.4 Value Proposition 1.5 Critical Success Factor of the Business 1.6 Current Status of Business 1.7 Description of the Business Industry 1.8 Contribution to Local and National Economy 2. Marketing Plan 2.1 Description of product and services 2.2 The Opportunity 2.3 Pricing Strategy 2.4 Target Market 2.5 Promotional Strategy 2.6 Competition 3. Technical and Service Plan 3.1 Description of the Location 3.2 Equipment, Assets and Liabilities 3.3 Legal and Regulatory Requirement 3.4 Service Cost 3.5 Stock Control Process 3.6 Pre-Operating activities and expenses 3.6.1 Operating Activities and Expenses 3.7 Project Implementation Schedule 4.0 Organizational and Management Plan 4.1 Ownership of the business 4.2 Profile of the promoters 4.3 Key Management Staff 4.3.2 Management Support Units 4.4 Details of salary schedule 5. Financial Plan 5.1 Financial Assumption 5.2 Start- up Capital Estimation 5.3 Source of Capital 5.4 Security of Loan 5.5 Loan Repayment Plan 5.6 Profit and Loss Analysis 5.7 Cash Flow Analysis 5.8 Viability Analysis 6.0 Business Risk and mitigation factor 6.1 Business Risks 6.2 SWOT Analysis

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