March 13, 2026

OBTAINING A MICROFINANCE LICENSE IN NIGERIA: IMPORTANT THINGS YOU NEED TO KNOW

by Ekosolicitors

Introduction to obtaining a microfinance license

Access to finance remains one of the most significant barriers confronting small businesses, artisans, traders, and low-income earners in Nigeria. Conventional commercial banks often impose stringent collateral and documentation requirements that many informal-sector individuals cannot meet. To address this financial gap, microfinance banks were introduced as specialised financial institutions designed to provide credit facilities, savings products, and other financial services to economically active poor persons and micro-entrepreneurs.

The licensing and regulation of microfinance banks in Nigeria are primarily governed by:

Banks and Other Financial Institutions Act 2020
Central Bank of Nigeria Act 2007
Companies and Allied Matters Act 2020.

The responsibility for supervising and issuing licences to microfinance banks rests with the Central Bank of Nigeria (CBN), which has issued comprehensive regulatory and supervisory guidelines for microfinance banks in Nigeria.[1]

Obtaining a microfinance licence is therefore a highly regulated legal process designed to ensure that only credible and financially capable institutions are permitted to operate within Nigeria’s banking sector.

OBTAINING A MICROFINANCE LICENSE IN NIGERIA: LEGAL AND REGULATORY FRAMEWORK

The Nigerian legal system requires that any entity intending to carry on banking business must first obtain a licence from the Central Bank of Nigeria. Section 2 of the Banks and Other Financial Institutions Act 2020 provides that no person shall carry on banking business in Nigeria except it is a company duly incorporated in Nigeria and holds a valid licence issued by the Central Bank of Nigeria.[2]

Consequently, people seeking to establish a microfinance bank must first incorporate a company under the Companies and Allied Matters Act 2020. The incorporation requirement ensures that the financial institution operates as a separate legal entity with perpetual succession, the ability to hold property, and the capacity to sue or be sued in its corporate name.[3]

The regulatory framework is further strengthened by the Regulatory and Supervisory Guidelines for Microfinance Banks in Nigeria, which were issued by the Central Bank of Nigeria to provide detailed operational standards for microfinance institutions. These guidelines regulate issues relating to capital requirements, corporate governance, risk management, licensing procedures, and operational restrictions applicable to microfinance banks.[4]

NATURE AND SCOPE OF OBTAINING A MICROFINANCE LICENSE IN NIGERIA

Microfinance banks are designed primarily to serve individuals and small enterprises that are excluded from conventional banking services. The microfinance policy of the Central Bank of Nigeria seeks to promote financial inclusion by expanding access to financial services for the economically active poor.

The services typically provided by microfinance banks include micro-credit facilities, savings accounts, micro-leasing, financial advisory services, and other financial products tailored for small-scale entrepreneurs. By extending financial services to underserved communities, microfinance institutions contribute significantly to poverty alleviation and grassroots economic development.

In order to facilitate effective regulation and supervision, the Central Bank of Nigeria categorises microfinance banks according to their operational scope. The regulatory guidelines recognise three principal categories: Unit Microfinance Banks, State Microfinance Banks, and National Microfinance Banks.

A unit microfinance bank is authorised to operate within a single location and is not permitted to open branches outside the approved operational area.[5] A state microfinance bank is permitted to operate within a particular state or the Federal Capital Territory and may establish branches within that jurisdiction, subject to regulatory approval.[6] At the highest level of operation are national microfinance banks, which are authorised to operate across multiple states within Nigeria.[7]

CAPITAL REQUIREMENTS BEFORE OBTAINING A MICROFINANCE LICENSE IN NIGERIA

Capital adequacy is a fundamental requirement for the licensing of microfinance banks. The Central Bank of Nigeria requires promoters to provide a prescribed minimum paid-up share capital before a banking licence can be granted.

The rationale for this requirement is to ensure that microfinance banks possess sufficient financial capacity to absorb operational risks and protect depositors’ funds. Under the existing regulatory guidelines, the minimum capital requirement for a unit microfinance bank is ₦200 million, while state microfinance banks require a minimum capital base of ₦1 billion. National microfinance banks must maintain a minimum capital of ₦5 billion.[8]

The required capital must be deposited with the Central Bank of Nigeria during the licensing process and may be verified by the regulator before a final licence is issued.

PROCEDURES FOR OBTAINING A MICROFINANCE LICENSE IN NIGERIA

The process of obtaining a microfinance bank licence in Nigeria is typically conducted in stages under the supervision of the Central Bank of Nigeria. The first stage involves applying to the Governor of the Central Bank for an Approval-in-Principle. This application must be supported by comprehensive documentation including a feasibility report, a detailed business plan, evidence of capital contribution, and information relating to the promoters, shareholders, and proposed directors of the institution.[9]

The feasibility report is particularly important because it demonstrates the economic viability of the proposed microfinance bank and outlines its operational strategy, governance structure, and financial projections. The Central Bank evaluates these documents in order to determine whether the proposed institution is capable of operating safely and efficiently within the Nigerian financial system.

Where the regulator is satisfied with the application, it may grant an Approval-in-Principle. The approval-in-principle does not authorise the bank to commence operations; rather, it allows the promoters to proceed with the establishment of the institution subject to compliance with specific regulatory conditions.

After obtaining the approval-in-principle, the promoters must satisfy additional regulatory requirements before a final licence can be granted. These requirements often include securing suitable office premises, installing banking infrastructure, recruiting qualified management personnel, and establishing appropriate accounting and internal control systems. The Central Bank may conduct a physical inspection of the proposed premises and operational facilities to verify compliance with regulatory standards.[10]

Once the Central Bank confirms that all conditions have been satisfied, a final microfinance banking licence may be issued. However, even after the issuance of the final licence, the microfinance bank must obtain formal approval from the Central Bank before commencing operations. This final stage ensures that all operational systems are functional and that the institution is fully prepared to carry out banking activities in accordance with regulatory requirements.

REGULATORY SUPERVISION AND COMPLIANCE

Microfinance banks remain subject to continuous supervision by the Central Bank of Nigeria after licensing. The regulator monitors their activities through periodic reporting requirements, prudential regulations, and routine examinations.

Licensed microfinance banks are required to maintain proper corporate governance structures, comply with capital adequacy standards, and implement effective risk management systems. They must also comply with anti-money laundering and counter-terrorism financing regulations, which require financial institutions to conduct customer due diligence and report suspicious financial transactions.

Failure to comply with regulatory requirements may attract sanctions ranging from monetary penalties to the suspension or revocation of the banking licence.

CONCLUSION

Microfinance banks play a vital role in expanding financial inclusion and supporting economic development in Nigeria. By providing financial services to individuals and small businesses that are excluded from traditional banking systems, these institutions contribute significantly to poverty reduction and grassroots economic growth.

However, the establishment of a microfinance bank is subject to strict regulatory control under Nigerian law. Promoters seeking to obtain a microfinance banking licence must comply with the provisions of law and the regulatory guidelines issued by the Central Bank of Nigeria. Adequate capitalisation, sound corporate governance, and strict regulatory compliance remain essential requirements for obtaining and maintaining a microfinance banking licence in Nigeria.

[1] Central Bank of Nigeria, Revised Regulatory and Supervisory Guidelines for Microfinance Banks in Nigeria (CBN 2012, as amended).

[2] Banks and Other Financial Institutions Act 2020, s 2.

[3] Companies and Allied Matters Act 2020, s 18.

[4 ] Central Bank of Nigeria, Regulatory and Supervisory Guidelines for Microfinance Banks in Nigeria (CBN).

[5] ibid

[6] ibid

[7] ibid

[8] ibid

[9] ibid

[10] ibid

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