We are breaking down the cost structure for establishing a microfinance bank in Nigeria for entrepreneurs. With financial technology (Fintech), the cost of setting up a Tier One microfinance bank is minimal.
Background
With financial technology (fintech), you need not establish your microfinance bank in prime neighbourhoods.
Your key strategy should include banking the unbanked or underbanked how they want to be banked. If they don’t want to sign, give them an App that validates fingerprints so they can bank with you.
They may want to refrain from filling out digital or print forms. Deploy agent bankers (POS agents) to capture their data electronically.
Carefully implement CBN’s (Central Bank of Nigeria) tiered KYC (know-your-customer) regulation. Nagera’s micro-economic (customer) base is huge, and a microfinance bank can leverage on volumes.
We know that with digital finance and financial technology, a tier-one microfinance bank can offer nationwide services from a remote, low-cost and eco-friendly office from a village.
Examples of Financial Technology Services for Microfinance Bank
A Tier One microfinance bank can deploy low-cost financial technologies such as:
- Agency banking: using white labelling – see how white labelling works in agency banking here – you can enable your customers, anywhere in Nigeria, to carry out banking services, pay bills, fund transfer, cash out, taxes, insurance, open bank account, and other related banking services.
- USSD (unstructured supplementary service data): enable your customers to use their smart or non-smart mobile devices to perform cash-out and cash-in services. That is fund transfer or withdrawal. You can learn the regulatory and compliance details for USSD here.
- Mobile banking: Using the white labelling model, you can deploy mobile banking services if you cannot build your mobile banking App.
- Settlement bank: you can act as a settlement bank for Fintech service providers. You can read my commentary on settlement accounts in Nigeria here.
- Banking infrastructure: you can develop critical banking software and allow other microfinance banks and Fintech to use your software or App for a fee.
- Internet banking: deploy internet banking for your corporate customers.
- Third-party mandate: enable third-party mandate, digitally or in ink, instead of probate letters or letters of administration. The CBN’s AML (anti-money laundry) Regulation allows the third-party mandate.
- Loans: digitize your credit assessment, disbursement and recovery.
Implementing financial technology reduces your headcount (employees), work tools, and physical space (offices). Then, consider outsourcing your marketing and other non-core staff.
Employee outsourcing enables you to have less than seven staff focused on delivering your strategy and plans.
Above all, you must build trust in your microfinance banking processes and applications.
Cost Structure
In proposing this Tier One microfinance bank cost structure, we assumed you had outsourced your non-core employees.
| S/No. | Agency | Transaction and Cost (₦) |
| 1. | CBN | · minimum capital requirement and share capital deposit: 50 million
· Non-refundable fees for application and licencing: 250 thousand |
| 2. | NDIC | · NDIC’s deposit liabilities insurance: pro-rated
· Staff fidelity insurance: pro-rated |
| 3. | National Association of Microfinance Banks (NAMB) | · dues for financial members of the NAMB: not ascertained |
| 4. | CAC (corporate affairs commission) | · filing fees for CAC registration: 255,000
· stamp duties for CAC registration: 425,000. |
| 5. | Office rent | · Two million annually |
| 6. | Office furniture and equipment | · On-need basis |
Conclusion
We estimate the regulatory and compliance cost for setting up a Tier One microfinance bank at sixty million Naira – CBN refunds fifty million to you upon registration. Your Solicitor’s professional fees is not included.
Fintech Lawyers at SRJ are respected by their peers and stakeholders as thought leaders. We are available to hold your hands from set-up to establishment. We understand how financial technology works if you want to scale your operations.
And we are available to enable your essential strategic relationships.
