Loan From a Microfinance Banks in Nigeria-The Step-by-Step Guide
Prior to the establishment of microfinance institutions in Nigeria, a large number of companies that fall under the category of small and medium ventures were not adequately represented in the country’s financial sector. They are prevented from having quick access to funds, which has a negative impact on their company and their means of making a living.
A microfinance development fund with a seed capital of N220 billion was established by the Central Bank of Nigeria in order to meet the funding requirements of small and medium-sized enterprises (SMEs). The Central Bank of Nigeria will be in charge of the fund’s administration, and licensed microfinance institutions will be in charge of its management.
What Is a Microfinance Bank and How Does It Work?
Microfinance Banks, also known as MFBs, are financial institutions that have been granted permission by the Central Bank of Nigeria (CBN) to engage in the business of providing microfinance and other financial services.
Microfinance services include loans, deposits, fund transfers, and any other financial products aimed specifically at customers with low incomes. These services are provided by financial institutions such as Nirsal and others.
In Nigeria, there are over one thousand microfinance banks (MFBs). These MFBs can be broken down into three categories: unit MFBs, state MFBs, and national MFBs. The combined lending portfolios of MFBs can reach up to N53 billion, which is significantly less than what other types of banks can offer. All Microfinance Banks (MFBs) are required by the Central Bank of Nigeria (CBN) to lend at least 80 percent of their loan portfolio to micro-enterprises.
The Step-by-Step Guide to Obtaining a Loan from a Microfinance Institution in Nigeria
In Nigeria, microfinance banks play critical roles in the fight against poverty, the expansion of agriculture, and the growth of other types of small businesses.
The majority of Nigeria’s microfinance banks require the following steps to be completed before approving a loan application:
1. Have a Real Strategy or Project in Mind for the Money You Want to Borrow
Before approaching any MFB with your idea, you should make sure you have a plan as well as a business plan to support it. Your chances of receiving a positive response from the micro-lending institution will improve as a result of this. Keep in mind that the sole reason these microfinance institutions were founded was with the intention of contributing to the growth of the economy. Because of this, they will only provide financing to businesses that are considered to be small and medium-sized.
The majority of microfinance banks offer loans for a variety of different reasons, including loans for salary earners, loans for businesses, loans to purchase assets, loans for agriculture, and loans for educational purposes.
2. Documentation of the Existence of Your Company
You may be able to obtain the necessary funds from a microfinance bank by providing evidence to the lenders that your business plan or entity already exists. As an illustration, if you are a trader, you might stipulate in the documentation of your business registration that you require proof of ownership of the business. It’s possible that you’ll also need bank statements or receipts of transactions to show that you run a business that’s currently active.
3. A Banking Account with the Institution
After ensuring that all of the necessary paperwork is in order, the next step is to establish a banking relationship with a microfinance institution. When you go to a microfinance bank in order to get a loan, the first thing that you have to do is open an account with the bank. This is both for the purpose of data capture and to demonstrate commitment to the bank.
4. The bank account must have been kept active for a considerable amount of time.
Before you can become eligible for a loan from a microfinance bank, the bank might require that you keep an account with them for a certain amount of time first. Despite this, it is not a standard procedure. Before you are eligible to apply for a loan, opening a bank account is not enough; the account needs to be active, which requires you to make regular deposits and withdrawals of money from the account. Only then will you be eligible to apply for a loan.
5. Give a Collateral Presentation.
When applying for a secured loan at a microfinance bank, it is possible that you will be required to present collateral as well. On the other hand, it might not be applicable to small business loans that are taken out by individuals or petty traders. There are some microfinance banks that do not require any form of collateral. However, it will be necessary for loan applications for more substantial amounts, such as those for agriculture, the acquisition of assets, and other types of loans for businesses.
When deciding on a microfinance bank, you need to exercise extreme caution. Some of these banks do not meet the requirements for providing qualified financial services and frequently treat their customers in an unprofessional manner. Which leads one to question whether or not SMEs truly require the services of microfinance banks.
If you want to get the best deals, you need to make sure that you fully understand the terms and conditions, and you should also look into the interest rates offered by other microfinance banks.