How to secure your MFB license in Nigeria

Securing the right license is necessary to operate a lending business in Nigeria. However, navigating the options to find the license that fits your business can be challenging. It’s important to clearly understand what each license permits and where its limitations lie.

As a digital lender, you have an array of licenses to choose from. After all, there is more than one way to skin a cat. However, when it comes to large-scale lending, the options usually narrow to finance houses and MFBs. 

We’ve previously given you a lowdown on MFB and Finance House licenses. Today, however, we’ll show you the processes and requirements to obtain one of these licenses — the MFB license. But first, a brief recap:

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What exactly are  Microfinance Banks?

Microfinance Banks (MFBs) in Nigeria are designed to support micro, small, and medium enterprises (MSMEs), particularly in rural and underbanked areas. The Central Bank of Nigeria (CBN) categorizes MFBs into four types.

Tier 1 Unit MFBs operate in urban areas and can open up to four branches within five Local Government Areas (LGAs), with a minimum capital requirement of N200 million. Tier 2 Unit MFBs focus on rural, unbanked regions, with only one branch outside their head office within the same LGA and a minimum capital of N50 million. State MFBs operate within a single state and can have up to two branches per LGA, requiring a minimum capital of N1 billion. Finally, National MFBs can operate across multiple states with up to ten branches initially and must maintain a minimum capital of N5 billion. Learn more.

You would need help to secure your license

Embarking on the journey to secure an MFB license is not a task to be taken lightly. The process is complex and laden with legal, financial, and regulatory requirements that can be overwhelming if tackled alone. This is where professional guidance becomes invaluable. By engaging the right experts, you can navigate this process more smoothly, ensuring that your application is thorough, compliant, and stands the best chance of approval. 

Lawyers for legal matters

Legal expertise is paramount when applying for an MFB license. The financial services industry in Nigeria is heavily regulated, with stringent requirements for documentation, compliance, and corporate governance. A lawyer with experience in financial services can help you:

Draft and review legal documents: From the Memorandum and Articles of Association to contracts with shareholders, your legal documents must be meticulously drafted to meet CBN’s standards.

Ensure regulatory compliance: Your lawyer will guide you in meeting all regulatory requirements, including anti-money laundering laws, corporate governance standards, and disclosure obligations.

Handle legal formalities: From submitting your application to responding to CBN queries, a lawyer can manage the legal formalities, ensuring your application is not delayed or rejected due to technicalities.

Consultants for business viability

While legal compliance is essential, the viability of your business is equally critical. The CBN needs to be convinced that your proposed MFB is legally sound and economically viable. This is where a business consultant can make a significant difference:

Feasibility report: A consultant can help you prepare a detailed feasibility report, an essential part of your application. This report should outline your business model, market analysis, projected earnings, and risk management strategies.

Capital verification: Consultants can assist in verifying that your capital is sufficient and compliant with CBN’s requirements. They can also help ensure that your capital sources are legitimate and well-documented.

Management team evaluation: CBN values the quality of your management team. A consultant can help you present your team’s credentials in the best possible light, ensuring they meet CBN’s standards for competence and experience.

Compliance experts for document review and submission

Ensuring your application is complete and accurate is crucial. Compliance experts play a vital role in this process by reviewing all your documents to meet the CBN’s standards, helping you prepare and organize essential supporting materials, such as shareholder lists and management team CVs, and guiding you through the submission process to ensure everything is filed correctly and on time.

Process and requirements for MFB license

Now that we’ve covered the professional help you may need let’s examine the specific steps involved in securing your MFB license.

Step 1: Formal application to the CBN

Your journey begins with a formal application to the Governor of the Central Bank of Nigeria, specifying the category of MFB you intend to establish. Your application must include:

• A non-refundable application fee:
  • N50,000 for Unit MFBs
  • N100,000 for State MFBs
  • N250,000 for National MFBs
• The minimum capital requirement for your chosen MFB category, deposited via e-payment into the MFB Share Capital Deposit Escrow Account with the CBN.
• Verifiable proof that the proposed MFB shareholders have met the minimum capital requirement, along with a declaration that the capital is not sourced from loans or illegal activities.
• A certificate of capital importation from an authorized dealer for foreign capital.
• A detailed feasibility report.
• A draft of the Memorandum and Articles of Association.
• A letter of intent to subscribe and pay for shares in the proposed MFB, signed by each subscriber.
• A list of proposed shareholders, including their business and residential addresses and their bankers’ names.
• Details of the proposed board of directors.

Step 2: CBN’s evaluation process

Before granting a license, the CBN evaluates several factors, including:

• The suitability of the promoters and management team to operate in the financial services industry.
• Whether the minimum paid-up capital of the shareholders’ funds is acceptable and verifiable.
• The quality of the proposed MFB’s management.
• The realizability of the company’s earnings prospects.
• Whether the company’s objectives align with the permissible activities listed in its Memorandum and Articles of Association.

Step 3: Approval process

The CBN typically takes three months to evaluate your application and supporting documents. If successful, you’ll receive an Approval in Principle (AIP) to incorporate the MFB at the Corporate Affairs Commission (CAC).

Step 4: Final operating license

After incorporation, the CBN will conduct a physical inspection of your premises. Upon satisfactory inspection, you’ll receive a final operating license, allowing you to commence business. If the CBN declines your application, you’ll receive a written explanation, and your capital deposit will be refunded.

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A license is nothing without the tech to power it

To truly succeed, you need more than just regulatory approval. You need the right technology, support, and expertise to build and scale your operations effectively. This is where Lendsqr comes in. 

From our end-to-end loan management software to our robust decision engine, Lendsqr provides the lending infrastructure you need to meet regulatory requirements and thrive in a competitive market. With Lendsqr, you can focus on growing your loan business while we handle the complexities of the technology you need to succeed.

Remember, a license opens the door, but what you do beyond that defines your success. Let Lendsqr be your partner in navigating the road ahead. Book a free demo.