In the world today, poor people have been traditionally excluded from formal financial services. But through innovative financial structures, such as group lending, microfinance institutions have been able to address the challenges. Moreover, they are able to achieve this by lending to the poor through services like microcredit, micro-savings,micro loans, and more. So, this article contains a lot of promising content on the functions of microfinance banks, loans, and how to apply for loans. Therefore, read through to the end of this article for the latest updates on this topic.
Microfinance Definition
Microfinance is a form of loan granted to individuals or groups of low income who don’t have access to other financial services.
You can also refer to microfinance as microcredit, meaning small loans offer to poor clients lacking access to credit. However, this is to help them start up a small business. Basically, three features distinguish microfinance from other formal financial products which include:
- The smallness of loans and savings.
- Absence of collateral.
- The simplicity of operation.
Mostly, microfinance help in promoting economic development, employment, and the growth of a nation. Also, it helps the poor to manage their finances more effectively by taking advantage of economic opportunities.
Read Also: What is Business: Definition, Concept and Basic Tips.
Microfinance Bank
Microfinance banks are institutions established to offer assistance to individuals and small-scale businesses to obtain small credit or loan facilities.
Loan facilities of microfinance are given for the following reasons, business, assets procurement, Agriculture, Educational purposes, etc. Therefore, individuals and businesses can apply for Microfinance loans as long as they meet the requirements provided by the bank.
Functions of Microfinance Bank
One of the factors that can hinder the growth of the business or completely destroy it is lack of financial backup. Therefore, in other to tackle this issue of financial lack, microfinance banks were established. They help small business owners with microloans as a means of assistance to run or grow their businesses. Below are some common functions of microfinance banks:
#1. They grant loans in its smallest unit
The primary functions of microfinance banks are to provide microloans to individuals or groups in need of it. But these individuals or groups must meet all of the requirements for acquiring such a loan.
#2. They help to alleviate poverty
The government’s primary objective for alleviating poverty is to provide job opportunities and provide income-generating means for businesses. Therefore, microfinance banks are the major players in this aspect as they provide credit facilities to individuals and businesses. This makes the functions of microfinance banks much more important in the poverty alleviation of a particular country.
#3. They create employment opportunities
The individuals, groups, and businesses provided with loan facilities will in turn engage the services of other people. Thereby providing employment opportunities like secretaries, receptionists, sales officers, cleaners, etc, for other people in their businesses.
#4. They help to increase both small and micro businesses
Microfinance banks make provisions for people with business ideas to bring their dreams to reality. Gone are the days when people think business is only for the rich and influential. Now, anyone can walk into any microfinance bank for a loan to start a business.
#5. Promotion of agricultural production and development
Microfinance banks make provision of credit facilities to farmers. These farmers get these loans for buying modern-day farming equipment such as tractors, ploughs, etc.
Read More: List Of Government Grants For Individuals
Microfinance Bank Loan
In business, sometimes you need a little more capital to expand your operation and meet your goals. So, MFB loans are there to help you maintain and grow your business. Hence, there are various types of loans granted by microfinance banks, these include the following:
- Individual Loan
- Group Loan
- School Improvement Loan
- School Fees Loan
- Small Enterprise Loan
- Asset Finance Loan
- Working Capital Loan
- Consumer Loan
Note, each of these microfinance bank loans has its own requirements but has no collateral attachment.
List Of Microfinance Banks In Nigeria
Research has proved that there are over 1015 MFB officially registered and approved by CBN to provide microfinance loans. But, below are the top 11 of these microfinance institutions in Nigeria you should know.
- 1. ADDOSSER Microfinance Bank Limited
- 2. LAPO Microfinance Bank
- 3. Mainstreet Microfinance Bank Nigeria
- 4. Accion Microfinance Bank Limited
- 5. AB Microfinance Bank Nigeria
- 6. Fina Trust Microfinance Bank
- 7. Microfinance Mutual Trust
- 8. FINCA Microfinance
- 9. Fortis Microfinance Bank Plc
- 10. Rehoboth Microfinance Bank
- 11. Nirsal Microfinance Bank
See Also: List Of Federal Government Agriculture Grants.
LAPO Microfinance Bank
LAPO microfinance bank is one of the great and most successful micro-financial institutions in Nigeria since the late 80s. They have become a household name in Oyo, Kwara, Lagos, and Ogun State. Hence, the bank has helped over one million entrepreneurs and individuals across Nigeria. In 2010, LAPO MFB obtained approval from the Central Bank of Nigeria (CBN) to operate a regulated microfinance bank. However, LAPO was licensed as a national microfinance bank in 2012 to undertake microfinance banking activities in Nigeria.
LAPO’s main goal is to create and develop small businesses into a profitable business in Nigeria. Thus, it provides entrepreneurs with amazing money lending and microfinance services. If you talk of a microfinance bank that gives listening ears to the needs of its seasoned and potential clients you talk of LAPO.
Moreover, they are aimed at reducing poverty with a pro-poor movement which is done by empowering low-income individuals. This they do socially and economically by giving individuals access to sustainable financial services. They offer unsecured loans of up to NGN 500,000 for small businesses and NGN5,000,000 for small and Medium-scale Enterprises.
LAPO MFB’s engagement in microfinance is much more than business as usual. It is about the development of people, particularly women. Meanwhile, the bank is governed by the board of directors and the management team.
Read More: Finance Companies: Best Picks For Any Business.
Nirsal Microfinance Bank
Nirsal microfinance bank is a CBN-licensed institution offering credit facilities for many purposes in Nigeria. These purposes include Agricultural loans, Microloans, SME loans, and Asset Financing. They offer these loans at a competitive rate with large loans always available for individuals who are in need of financial services.
Basically, extensive paperwork is needed to access larger loans at Nirsal microfinance bank. You will also need a guarantor for some loans and the individual seeking these loans must attend compulsory training. Moreover, to gain access to any form of a loan at Nirsal microfinance bank, you must possess the following requirements:
- Letter of employment
- Staff identity card
- Payslip
- 6 months statement of account
- Other forms of identification (National Identity card, international passport, etc)
- Utility bill
- 2 passport photographs
- Guarantor form
- 6 months other bank account statement.
- Letter of confirmation of appointment/employment.
- Every direct debit is placed on the customer’s account.
- Execution of dud cheque indemnity form.
Read Also: Invoice Factoring: All You Need Explained + Loan Options.
How To Apply For MFB Loans In Nigeria
The interest rate on microfinance loans ranges from 5% to 6%, depending on the loan size. Meanwhile, the tenure of the loan depends on the loan type. And this tenure may range from 1-3 months, 4-6 months, and 4-12 months, respectively. However, the maximum maturity date is 18 months, which only applies to businesses that are granted up to 5 million naira in credit facilities.
Hence, to apply for microfinance bank loans in Nigeria, the following three major factors should be considered:
- Customers must have at least 6 months of active and serviced bank accounts. This is to prove creditworthiness to the bank.
- Basically, every individual seeking MFB loans is advised to distinguish his personal account from a business account for proper accountability.
- For Small and Medium Scale Enterprises, the business must be active for at least one year. Also, the business must have operates from the same location for at least six months.
Documents Required When Applying For a Microfinance Loan
Generally, any individual seeking a microfinance loan in Nigeria must provide the following documents.
- Loan application form
- Excellent Business Proposal (for SMEs)
- Letter of Application (for individuals)
- Valid means of identification (National I.D card, International Passport, Driver’s License)
- Copy of recent utility bill
- 4 recent passport photographs
- Evidence of the business location
See Also: World Bank Grants: All You Need To Know.
What Is the Main Objective of Microfinance?
Similar to microcredit, the objective of microfinance is to provide financial services to assist entrepreneurs in underdeveloped nations to act on their ideas, acquire the financial resources necessary to do so, and eventually become self-sufficient.
Do Micro Finance Banks Give Loans?
Microfinance lending is the provision of financial services to individuals who lack access to conventional financial institutions, such as banks. The loans are designed for individuals formerly deemed “unbankable” by larger financial institutions.
What Are the Major Services of Microfinance?
Microfinance encompasses a variety of financial instruments, including savings, credit, leasing, insurance, and cash transfers. A number of entities provide these services, which can be roughly categorized as banks, NGOs, credit and savings cooperatives and associations, and non-financial and informal sources.
What Are Microfinance Risks?
As part of their role as financial intermediaries within the economy, microfinance institutions knowingly assume risk. As a result, they are exposed to a variety of risks, such as credit risk, interest rate risk, liquidity risk, and operational risk.
How Much Do You Need to Start a Micro Finance Bank?
The required share capital for a state microfinance bank is N1,000,000,000 (one billion naira). This amount will be deposited with the CBN and may be invested by the CBN before being returned to the depositors, with interest, at the conclusion of the application process, regardless of whether the final License is granted.
What Are the Products of Microfinance Bank?
The products of MFIs are widely categorized as financial products and non-financial products. The financial products include of loan, savings, leasing, insurance, fund transfer, and pension transfer, among others.
What Is the Difference Between Bank and Microfinance?
Microfinance caters to the financial services needs of the poor and micro-enterprises and is typically a collateral-free, short-term facility, whereas commercial banks deal largely with corporate clients, SMEs, and high-income people and issue financing facilities based on collaterals.
Conclusion
MFB has served and still serves as machinery to governments. as a means of promoting economic development and growth. Research has proven that MFB has played a vital role in providing job opportunities and supporting small-scale businesses. They have created many means of poverty alleviation in general. So, as a small business owner seeking a way to grow your business, MFB should be your best option.
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