How much money do you need?

By Adolphus Abraham

I have received several calls in the recent past from people calling to say they have saved N20 million and they would like to float an MfB with it. My friend, I am usually glad to tell them that their money was inadequate for obtaining an MfB license. Prior to April 2019, once you have an idle N20m, you could own a license. Yes! For real.  Even before then you could own a Community Bank License issued by CBN with N5m in year 2000. The CBN considered this capital too little and that it was responsible for the failure of so many of them. In fact the World Bank had conducted a survey and one of the recommendations to the CBN was the increase in capital of MfBs. So after the withdrawal of licenses and reduction of the number of MfBs from alittle above 4000 to 882 in 2018, the CBN has directed that all MFBs should meet an enhanced minimum capital. This has led us to the question of how much do you really need to get an MfB running?

In attempting to answer the question of how much you need, you would first have to decide on how you wish to play in the industry and what sum is available to you. Initially, it used to be 3 categories of investment level as advised by the CBN. You have the Unit, State and National. I will explain further.

Unit: These are licenses issued by the CBN to MfB operators who wish to carry out their business within a given location. Their operations are restricted by geography and they are not permitted to operate outside that place without a prior approval from the CBN. You can call it a Local Government license if you wish. If your MfB license is issued to Ibeju-Lekki local government area for instance, you cannot open an office in Eti-Osa without approval from CBN.

State: These are licenses issued by the CBN to MfB operators who wish to carry out their business within a given state in Nigeria. Their operations are restricted by geography and they are not permitted to operate outside that state without a prior approval from the CBN. The CBN will usually not issue you this license if you have not operated at the unit level as they encourage investors to grow organically. Once you have this license, you can open an office in any part of the state. For Instance after operating as a unit MFBs for some time and licensed to Ibeju-Lekki, you may decide to upgrade your license and upon approval, you can go to Ikeja, Eti-Osa, Lagos Island or any choice location to open an office.

National: These are licenses issued by the CBN giving MfBs the liberty to operate in any part of the country. There is no geographical limitation. MfBs are also encouraged to upgrade from their state status to acquire this status.

Just a quick enlightenment. After the CBN reviewed the capital required for floating an MfB upwards in 2018, there were hues and cries from all stakeholders. Some argued that the minimum capital required for Unit License was unrealistic. They specifically argued that MFBs in the core rural areas do not need such high capital to function. In their characteristics manner and after being engaged by NAMBS (National Association of Microfinance Banks), the CBN reviewed the unit status and broke it into Tier 1 and Tier 2. Tier 1 are MBs located in core rural areas while Tier 2 are those located in urban areas.

Next week, we shall continue with how much you need and the timelines available to you.

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•  Adolphus Abraham is managing director, Rigo Microfinance Bank