How to get Microfinance Loans in Nigeria
Before the recommendation of microfinance institutions in Nigeria, many businesses under small and medium ventures have been represented poorly in the financial sector.
They are denied easy access to funds which has affected their business and means of livelihood.
In a bid to address the funding requirements of the SMEs, the Central Bank of Nigeria set up a microfinance development fund with a seed capital of N220 Billion.
The fund will be administered by the Central Bank of Nigeria and managed by licensed microfinance institutions.
What is Microfinance Lending Institutions
A Microfinance Bank (MFB) is an institution duly licensed by the CBN to perform the business of providing microfinance and other financial-related services. Microfinance services refer to loans, deposits, fund transfers and any other financial products targeted at low-income clients – just like the other microlending services in Nigeria.
Where can I get microfinance funds in Nigeria?
There are over 1000 microfinance banks (MFBs) in Nigeria, which include unit MFBs, state MFBs and national MFBs. Collectively MFBs are much smaller than other banks, with a total lending portfolio of up to N53 billion. The Central Bank of Nigeria (CBN) requires all MFBs to lend at least 80% of their loan portfolio to micro-enterprises.
How to get funding from microfinance banks
They play vital roles in poverty eradication, agriculture, increase in small scale businesses, etc.
We will concentrate on MFBs in Nigeria and how they grant loans. The following are steps to getting a loan from most microfinance banks in Nigeria:
- Have A Genuine Plan or Project for the loan
Before approaching any MFB, make sure you have a plan and a business plan to support your idea. This increases your chance for a favourable response from the micro-lending institution. Bear in mind that these microfinance institutions were established for the sole purpose of strengthening the economy. Because of this, they only grant loans that fall in the category of SMEs
Most microfinance banks grant loans for business purposes, asset procurement, agriculture, educational purposes, loans for salary earners, etc.
- You might need proof
Showing the lenders proof of your business entity or plan can help you secure the funds you need from a microfinance bank. For example, if you are a trader, you might require proof of business ownership in the documentation of your business registration. You might also need bank statements or receipt of transactions showing that you have an operating business.
- Open An Account With The Bank
After getting all the documentations right, the next thing is to open an account with the microfinance bank. When you apply for a loan in a microfinance bank, the first thing is to open an account with the bank. This is for data capturing as well as to show commitment to the bank.
- Maintain The Account For some time
Some microfinance bank would require that you maintain an account with them for a period before you can be eligible for a loan. However, it is not common practice. It does not just end with opening an account with the bank, the account has to be active which involves paying and withdrawing money from the account constantly before you can be qualified to apply for a loan.
- Get collateral to secure the loan
You may also need to present collateral when applying for a secured loan in a microfinance bank. However, it may not be applicable to small business loans for petty traders and individuals. Some microfinance banks do not need collateral. But, it will be necessary for business loans such as assets acquisition, agriculture and other loan application with a more substantial amount.
You need to be careful when opting for a microfinance bank. Some of these banks are not qualified financial service providers and often treat customers unprofessionally. Which makes one wonder if SMEs really need microfinance banks.
Be sure you understand the terms and condition as well as compare interest rates from other microfinance banks to get the best deals.