What is a Microfinance Bank?
A microfinance bank is a type of bank that offers small loans, or microloans, to individuals, entrepreneurs and small businesses. These banks typically function to provide opportunities to low-income regions where small amounts of money can go a long way. Simply put microfinance banks ultimately provide credit to those who are unable to access the type of capital needed to develop businesses or kick-start their entrepreneurial dreams.
In most cases, microfinance banks aim to promote growth and development in low-income areas by investing into the social development of the region. While these banks still make a profit on the loans, their primary focus is to promote growth through the provision of certain resources including financial and business advice.
What is Microfinance?
The term microfinance refers to a range of financial products including microloans, microsavings and microinsurance products that microfinance institutions (MFI's) offer to their clients. While most entrepreneurs and small business owners have a wealth of knowledge and ideas for their businesses, very few of them have the right amount of capital to support these ideas. That is exactly why receiving a microloan is an ideal option for startups or businesses that need less money than a conventional bank would lend.
A microloan (also called micro-credit), as its name suggests, is a loan of a small amount primarily to help SME's (small to medium sized enterprises), entrepreneurs, and private individuals to finance their business demands or private investments. A microloan, in banking terms, usually refers to loans that usually range between ₦15,000 to ₦2,000,000 and is offered by banks as well as microfinance institutions around Nigeria.
What are the major Microfinance Banks in Nigeria?
The most well-known microfinance banks in Nigeria are RenMoney MFB, Page MFB, Lapo Microfinance Bank, or AB Microfinance Bank. Most microfinance banks have branches in Nigeria's biggest cities like Lagos, Abuja, Port Harcourt or Ibadan, while smaller microfinance banks primarily operate only in one city or in certain rural areas. Some microfinance banks in Nigeria are very traditional offering loans only in the microfinance bank office, while other microfinance banks offer online applications for micro loans. Some microfinance banks even send a representative to your office or home to pick up your documents that are needed to get a micro loan.
What do Microfinance Loans in Nigeria look like?
In most cases, microfinance banks in Nigeria offer loans between ₦20,000 and ₦2,000,000 with an interest rate starting from 2.38-5.00% monthly. These banks are available in most cities across Nigeria, some are even willing to provide microloans without collateral.
Microfinance Banks need no collateral?
Yes, it's true, most microfinance banks will offer loans without any collateral needed. In order for you to successfully receive a microloan from these banks, you will need to be earning a salary of at least ₦50,000 per month and you must be in full-employment for at least a year. When approaching a microfinance bank for a loan, they will perform a credit check which is why it is so essential to tick the boxes on all of the above requirements.
Is a Microloan the right choice for me?
If you a trustworthy and honest individual with a dream to start a business, organisation or startup, but you don't have the credit to do so, then a microloan is what you need. A microloan will allow you to borrow just the right amount of money to kick-start your idea into motion without putting you into debt. To make sure that you get approval for your microloan, remember that the way you present yourself is a reflection of the way you handle your business and your finances. Be professional in character as well as in your application for the loan. Demonstrate your ability to pay back the loan through positive cash flow statements and experience in your field. A good idea would be to provide strong references and records that demonstrate your dedicated and trustworthy nature.
Example Loan: ₦500,000 Loan amount, 1-12 months duration, 2.83% monthly interest rate, 37.61% max APR, ₦688,050 total value, ₦57,338 max monthly repayment, RenMoney MfB