When we talk about Microfinance bank loans in Nigeria, most people may not be aware of what it is about, how it works, and especially, how to apply for these microfinance bank loans. We are going to find out all about it in this post so, keep reading.
The outburst of globalization has brought so many changes in almost every work phase of life if not all. Ranging from industries, technology, education, and more, — and financial institutions are not left out of this positive eruption as well.
Technological advancement has given room to lots of sectors to enjoy development in a very easy way. The use of sophisticated equipment has brought vast development and its impact is majorly felt in the financial industries — which can be seen in practice. As man shifted from the old and crooked financial systems to this modern-day infrastructure — such as the banks and other macro and micro institutions both publicly and privately owned, businesses and financial dealings became much easier.
The bank has continued to involve and they are giving birth to other institutions, whose aims and claims are to provide some sought financial support or other features. Some of these features are savings, interest rate, protection of valuables, and lending(giving out soft loans). Talking about soft loans — brings us to the base of our topic but with a focus on the Microfinance bank loan in Nigeria.
However, before we continue, let’s look at the general term LOAN.
Read Also: Nirsal Microfinance Bank Loan Application
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What Is A Loan?
Loans simply put is an agreement between two people whereby one person known as the lender gives a specific amount of money to the other party known as a borrower with intention of the money being returned at a given date with an agreed rate of interest attached to it.
Loans are beneficial to both parties as the lender makes a profit from it and the borrower has his immediate needs for taking such loans solved.
Loans could be gotten from different people, it could be from friends, colleagues, financial institutions, online apps e.t.c.
When it comes to loans provided by financial institutions it varies depending on what their customers want. Loans offered by most financial institutions came out of the desire and willingness of financial institutions to help individuals who need financial assistance either for personal reasons, business, education, etc. It could be for short or long-term needs or expenses pending the terms of the contract.
Microfinance Bank Loans In Nigeria.
What is a microfinance bank?
Microfinance bank is a category of financial services targeting individuals and small businesses who lack access to conventional banking and related services. Microfinance bank includes microcredit, the provision of small loans to poor clients’ savings and checking accounts, and microinsurance and payment systems, among other services.
Microfinance banks are institutions that are established to provide financial services to the active poor. Two categories of microfinance banks (MFBs) are recognized under the microfinance policy of Nigeria.
The first category has MFBs licensed to operate as unit banks and within a local government area. The capital requirement for this type of bank is N20 million.
In the second category are microfinance banks that are licensed to operate on a statewide basis. Each of such banks requires N1 billion as capital and may attempt a national outreach subject to meeting additional conditions by the CBN.
Brief History Of Microfinance Bank In Africa (Nigeria).
The first evidence of financial institutions in Africa dates back to the 16th century when esusu was dominant, a rotating savings and credit association (RoSCA) among the Yoruba. As a part of social capital, the esusu as a financial self-help group was transported during the slave trade to the Caribbean islands (Bascom 1952:69), where both the institution and the term still exist today and are now carried by a new wave of migrants to major American cities. Its origin was probably rotating work associations, in which labor as a scarce commodity was accumulated and shared by one member at a time and then, with the spreading of commercial transactions, replaced by money, such as cowries, pounds, and Naira.
Nigeria is one of the countries where informal financial institutions continue to play a significant role. There may be only a few Nigerians who are not a member in one or several of them. Numerous adaptations and innovations have sprung up from the RoSCAs. Among which is the transformation into non-rotating savings associations with a permanent loan fund.
Both the name, esusu, and the institution have spread as far as Liberia in the 1960s as the only effective financial institutions existing in the countryside.
The other one is daily deposit collection at doorsteps or market stalls which seems to have originated among the Yoruba (popularly named ajo) from where it has spread all over West Africa over the past 50 years.
These informal financial institutions are immensely popular in Nigeria. Virtually every ethnic group has its own institutions and proper names. For example, Adashi in Hausa, is very popular besides esusu, and most adults are members of one or several. Yet their importance and potential have been controversially discussed.
In 1934 C.F. Strickland, a British cooperative expert examined the esusu as a possible basis for modern cooperative societies in Western Nigeria. Having previously worked on the rotating chit funds in India, he speculated that the esusu must have been imported from India at some unknown time, found them “improvident” and “fraudulent”, and concluded that he was “not hopeful of the reform of the Esusu.” (Strickland 1934:14).
Benefits Of Microfinance Banks
The benefits and goals of microfinance banks include the followings:
- To provide diversified, dependable, and timely financial services to the economically active poor.
- To mobilize savings for financial intermediation.
- To create employment opportunities.
- To involve the poor in the socio-economic development of the country.
- To provide veritable avenues for the administration of the microcredit programs of government and high net worth individuals.
- To render payment services such as salaries, gratuities and pensions on behalf of various tiers of government.
- Eliminating gender disparity by improving women’s access to financial services.
How To Apply For A Microfinance Bank Loan.
Here are some steps to be taken when applying for a Microfinance bank loan.
- 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 of a favorable response from the micro-lending institution.
- Proof of Your Business Entity
One of the requirements for securing a loan is to show the lender proof that 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 receipts of transactions showing that you have an operating business.
- An account with The Bank
After providing the necessary documents, 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.
- The Bank Account Must Have Been Maintained For Some Time
Some microfinance banks 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.
- Present A Collateral
Be ready 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.
You can simply access loans without collateral from these banks
Summary.
The Microfinance banking system has contributed to Nigeria’s economy on a large scale. Especially to the small-scale businesses or entrepreneurs whose tasks contribute to the country’s revenue growth as well helping the government in the creation of employment opportunities.
Read Also: How To Be Eligible For First Bank Loan
