The banking industry is one of the most regulated industries in Nigeria. The microfinance industry in particular is booming and has seen quite a bit of entrant in the past few years. From the Microfinance Policy, the Regulatory and Supervisory Framework issued on December 15, 2005, and revised in 2011, the Revised Regulatory and Supervisory Guidelines for Microfinance Banks in Nigeria 2013 and the present Guidelines for Regulation and Supervision of Microfinance Banks in Nigeria issued January 2020, it is manifestly clear that the aim of the policy/guidelines, among others, is to increase financial inclusion rate in the country by providing access to financial services such as micro-savings, micro-credits, transfer services, and other financial products to the economically active poor. These services have, over time, evolved to include the transmission of government’s developmental initiatives. The Guidelines seeks to promote rapid and sustainable growth of the microfinance industry, leveraging on global best practices in microfinance banking.[1]


A Microfinance Bank (MFB) is construed to mean any company licensed by the Central Bank of Nigeria (CBN) to carry on the business of providing financial services such as savings and deposits, loans, domestic fund transfers, other financial and non-financial services to microfinance clients.[2]

The target clients of microfinance banks include the economically active poor, low-income households, the un-banked and underserved people, particularly vulnerable groups such as women, youths and the physically challenged, informal sector operators, micro-entrepreneurs, and subsistence farmers.

Persons eligible to set up a microfinance bank and obtain a licence are individuals, groups of individuals, community development associations, private corporate entities, or foreign investors subject to a maximum of 49% shareholding for individuals and aggregate related parties.[3]

It is important to note that an individual, group of individuals, their proxies or corporate entities, and/or their subsidiaries cannot own a controlling interest in more than one MFB, except as approved by the CBN.[4]


A person cannot carry on any banking business in Nigeria except such business has been incorporated and holds a valid banking licence. The Banks and Other Financial Institutions Act, (BOFIA), 2020, makes it an offense for any person/body to transact banking business without a valid licence issued by the CBN.[5] The BOFIA goes further to provide a penalty of 5 years imprisonment or a fine of not less than ₦50 million or two times the cumulative deposits or other amount collected or both imprisonment and fine for anyone who violates this provision.[6] In other words, all financial institutions seeking operations in Nigeria must be licensed by the CBN.

For microfinance banks, licensing will depend on the category of the MFB, and to this end, we will briefly look at the various categories of MFB and their financial requirements. Pursuant to the 2020 guidelines, there are four categories of microfinance banks in Nigeria:[7]

1. Tier 1 Unit MFB

A Tier 1-unit MFB is an MFB authorized to only operate in the urban, banked, and high-density areas and is limited to four branches outside the head office within five contiguous local government areas unless otherwise approved by the CBN.

2. Tier 2 Unit MFB

A tier 2-unit MFB is a category of MFB authorized to only operate in the rural, unbanked, or underbanked areas and is allowed to open one branch outside the head office within the same Local Government Area (LGA) subject to the approval of the CBN.

3. State Microfinance Bank

A State MFB is authorized to operate within one State or the FCT. It is also allowed to open branches within the same State or the FCT, subject to the prior written approval of the CBN for each new branch or cash centre. However, a State MFB is not permitted to open more than two branches in the same LGA unless it has established at least one branch or cash centre in every LGA of the State.

Note that, a newly licensed State MFB cannot commence operation with more than ten (10) branches.

4. National Microfinance Bank

 National MFBs are authorized to operate in more than one State including the FCT but a newly licensed National MFB cannot commence operations with more than ten (10) branches.

N.B: The minimum capital share requirement for these categories is ₦200,000,000, ₦50,000,000, ₦1,000,000,000, ₦5,000,000,000 for Tier 1, Tier 2, State and National MFBs respectively which may be reviewed from time to time by the Central Bank of Nigeria.[8]


Application for MFB license is in three stages,[9] namely:

1.    Pre-licensing Presentation stage: At this stage, the promoters and investors will 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 already existing MFB.

2.    Approved-in-Principle (AIP) stage: The promoters of MFBs will be required to submit a formal application for the grant of licence addressed to the Governor of the Central Bank of Nigeria or The Director, Financial Policy & Regulation Department with the required documents such as;

·    Evidence of payment of non-refundable application fee of ₦100,000, ₦100,000, ₦200,000, and ₦300,000 for Tier 1, Tier 2, State and National MFBs [10] respectively to the Central Bank of Nigeria;

·    Evidence of capital contribution made by each shareholder;

·    Evidence of minimum capital deposit in line with the Guidelines, to be verified by the CBN;

·    Evidence of name reservation with the Corporate Affairs Commission (CAC)

·    Detailed business plan or feasibility report Organizational structure, showing functional units, responsibilities, reporting relationships and grade of heads of departments/units; and other documents required by the CBN.[11]

The CBN will communicate its decision to the applicant within 90 days following the receipt of the application and if satisfied, it shall issue an Approval-in-Principle (AIP) to the applicant. The proposed bank is prohibited from incorporating/registering 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 Corporate Affairs Commission (CAC) for registration. In other words, the grant of AIP is a condition precedent for registration at CAC.

3.    Final License: The Guidelines provide that not later than six (6) months after obtaining the AIP, the promoters of a proposed Microfinance Bank are required to submit an application 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:

·      Evidence of payment of a non-refundable licensing fee of ₦250,000, ₦250,000, ₦500,000, and ₦1,000,000 for Tier 1, Tier 2, State and National MFBs [12] respectively to the Central Bank of Nigeria;

·      Certified True Copy (CTC) of Certificate of Incorporation of the bank;

·      CTC of MEMART;

·      CTC of Form CAC 1.1 (Application for Registration of Companies);

·      Evidence of the location of Head Office (rented or owned) for the take-off of the business;

·      Schedule of changes, if any, in the Board, Management, and Shareholding after the grant of AIP; and other documents as may be required by the CBN.

As a requirement to the grant of a final licence, the CBN usually inspects the premises and facilities of the proposed bank to check the physical structure of the office building and infrastructure provided for the take-off of the MFB; sight the original copies of the documents submitted in support of the application for license; meet with the Board and Management team whose resumes had earlier been submitted to the CBN; verify the capital contributions of the promoters, and verify the integration of its infrastructure with the National Payments System.[13]

Upon grant of the final licence, a microfinance bank must display its licence in the Head Office and branches and any bank who fails to comply with this is liable to a fine of ₦100,000 for each location without display of the licence.[14]


The CBN may revoke a licence where any bank fails to comply with its provisions.

These instances include:

1.    Submission of false information/data during and/or after the processing of the application for licence;

2.    Multiple ownership or use of proxies or disguised names to obtain a license to operate as an MFB;

3.    Engaging in non-permissible activities as specified in Section 2.2 of the Guidelines;[16]

4.    Persistent failure to comply with a request for information/data in the form required/specified by the CBN;

5.    Diversion or misuse of CBN intervention fund;

6.    Failure to redeem matured obligations to customers;

7.    Failure to render statutory returns for a continuous period of 6 months or a cumulative period of 6 months in a financial year;

8.    Unauthorized closure of business activities;

9.    Failure to comply with any directive issued by the CBN;

10.    Critically undercapitalized or insolvent; and

11.    Any other grounds for revocation as may be specified by the CBN from time to time.


Obtaining a licence is relevant to the ownership of a microfinance bank, operation, or provision of financial services in Nigeria. An entity that fails to fulfill this requirement before providing financial services contravenes the provisions of the Act and would consequently face severe sanctions that would affect the growth of its business. It is therefore a wise business decision for an entity seeking to enter and profit from the banking industry particularly the microfinance sector in Nigeria to obtain the requisite licence required to provide their desired financial services. It is equally important to conduct proper legal due diligence to protect a potential investor from liabilities and regulatory sanctions. Thus, entities should retain the services of a well-experienced and knowledgeable banking regulatory lawyer or law firm in this regard.


[1] Guidelines for the Regulation and Supervision of Microfinance Banks in Nigeria 2020

[2] Guidelines 24.0

[3] Guidelines 4.1.1

[4] Guidelines 4.1.2

[5] Section 2 Banks and Other Financial Institutions Act (BOFIA) 2020

[6] Section 2(2) Ibid

[7] Guideline 3.0 Guidelines for the Regulation and Supervision of Microfinance Banks in Nigeria 2020.

[8] Guidelines 4.2.7

[9] Guidelines 4.2

[10] Ibid

[11] Section 3 Banks and Other Financial Institutions Act (BOFIA )2020

[12] Guidelines 4.2.7

[13] Guidelines 4.2.4

[14] Guidelines 23.0

[15] Guidelines 21.0

[16] Guidelines 23.0



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