MICRO-FINANCEBANKING INSTITUTIONS

1.0 INTRODUCTION

In this unit you will learn of the micro-Finance banking institutions as provider of financial services to the under privileged (poor) of our community who are traditionally not served by the conventional financial institutions.

2.0 OBJECTIVES

At the end of this unit, you shall be able to:

1.  Discuss the need for engaging in micro-financing
2. State ownership of Microfinance Banks 
3. List Source of Funds of Microfinance Banks
4.  Categorize MFBs 

3.0 MAIN CONTENT

The weak performance of the then community banks in Nigeria due to weak capital base, incompetent management, weak internal control, lack of deposit insurance schemes, poor corporate governance, lack of well defined operations, restrictive regulatory/supervisory requirements
among other factors led to the formulation of Micro finance policy by the Central Bank of Nigeria (CBN). According to the policy there are three features distinct micro-finance from other formal financial products. These are the smallness of loans advanced and/or savings collected the absence of asset-based collateral and simplicity of operations.

A Micro-Finance Bank (MFB) unless otherwise stated according to Central Bank of Nigeria shall be constructed to mean any company licensed to perform the business of providing micro finance services such as savings, loans, domestic funds transfer and other financial services that are needed by the economically active poor, micro and small and medium businesses/enterprises to conduct or expand them as defined by the micro finance policy guidelines.


The supervisory and regulatory guidelines for MFBs are issued by CBN in exercising the powers conferred on it by Banks and Other Financial Institutions Act (BOFIA) No.25 of 1991 as amended. The guidelines are designed to regulate micro-finance activities and the establishment and operations of MFBs that seeks to accept savings/deposits from members of the public and engage in micro-finance intermediation services for their clients in Nigeria.

Categories OF MFBs

There are two categories of MFBs namely: The one licensed to operate

1.  As a unit bank. 
2.  In a state. 

The recognition of these two categories does not preclude them from aspiring to have a national coverage, subject to their meeting the prudential requirements. This is to ensure an orderly spread and concentration in areas already having large numbers of financial Institutions.
The MFBs licensed to operate as a unit bank shall be community based. It can operate branches and/or cash centres subject to meeting the prescribed prudential requirements and availability of free funds for operating branches/cash centres. The minimum paid up capital for this category of banks shall be N20.0million for each branch.

The MFBs licensed to operate in a state shall be authorized to operate in all parts of the state (or of the Federal Capital Territory as applied) in which they registered, subject to meeting the prescribed prudential requirements and availability of free funds for opening branches. The minimum paid up capital for this category of MFBs shall be N1.0billion

3.2 Ownership of Microfinance Banks (MFB)

Micro-finance banks can be established by individuals groups of individuals, community development association’s private corporate entities or foreign investors. Significant ownership diversification is encouraged to enhance good corporate governance of licensed Micro-finance banks. No individual, group of individuals, their proxies, can establish more than one MFB under a different a different or disguised name.

3.3 Source of Funds of Microfinance Banks

The sources of funds of any MFB operating in Nigeria shall come from the following:

1.  Shareholder’s funds paid up share capital and reserves. 
2. Deposits/Savings of customers. 
3.  Debenture (Bonds)/Qualifying medium to long term lo0ans. 
4.  Grants/Donations from individuals, organizations, government and international sources 
5. Fees and Commissions and 
6.  Interest income. 

3.4Activities of MFB

Permissible activities of Micro-finance Banks include:

1.  Acceptance of various types of deposits including savings, time, target and demand deposits from individuals, groups and associations except public sector (government) deposit. 
2.  Provision of credit to its customer both formal and informal self – help groups, individuals and associations. 
3. Promotion and monitoring ancillary capacity building in such area as record keeping and small business management. 
4.  Issuance of redeemable debentures to interested parties to raise funds from members of the public with the CBN approval. 
5. Collection of money or proceeds of banking instruments on behalf of its customer through correspondents banks. 
6.  Provision of payment services such as salaries, gratuities and pensions for the various tiers of government. 
7.  Provision of loan disbursement services fo0r the delivery of the credit programmes of governments, agencies, groups and individuals for poverty alleviation on a non-recourse basis. 
8. Provision of ancillary banking services to their customers, such as domestic remittance of funds and safe custody. 
9.  Maintenance and operation of various types of account with other banks in Nigeria. 
10. Investment of surplus funds of the MFB in suitable instruments, including placing such funds with correspondent banks in Treasury bills. 
11. Payment and receipt of interests as may be agreed between the 

MFBs and their clients in accordance with existing guidelines.

1. Operation of micro-leasing facilities, microfinance related hire- purchase, and arrangement of consortium lending and supervision of credit schemes to ensure access of microfinance customers to inputs for their economic activities. 
2.  Receiving of re-financing or other funds from the CBN and other sources, private or public on terms mutually acceptable to both the provider of the funds and the recipient MFBs. 
3. Provision of microfinance related guarantees for MFB customers to enable them have greater access to credit and other resources. 

4.0 CONCLUSION

In this unit you learned of the micro-Finance banking institutions as provider of financial services to the under privileged (poor) of our community who are traditionally not served by the conventional
financial institutions and concluded that the weak performance of the then community banks in Nigeria due to weak capital base, incompetent management, weak internal control, lack of deposit
insurance schemes, poor corporate governance, lack of well defined operations, restrictive regulatory/supervisory requirements among other factors led to the formulation of Micro finance policy by the Central Bank of Nigeria (CBN).

5.0 SUMMARY

The unit deliberated on the following: Micro-finance Banking Institutions, Ownership of Microfinance Banks (MFB), Source of Funds of Microfinance Banks and activities of Microfinance Banks.

6.0 TUTOR MARKED ASSIGNMENT

1. List Source of Funds of Microfinance Banks. 
2.  Discuss how Microfinance Banking in Nigeria are categorized.