How to Start a Bank in Nigeria
Statistics have shown that we have almost 186 million Nigerians as at 2016, which must have increased by now and only about 43% of these population is bankable. This statistics shows a wide gap that needs to be bridge to enable that every Nigerian is bankable; with this statistical fact, owning a bank becomes one of the in a country like Nigeria with this vast population becomes and extremely profitable venture. It’s important to take note at this point that most Nigerians operate more than one bank account and most times services these account because of the uniqueness the banks offers and the purpose for each of these accounts.
Contrary to what a lot of people feel most these folks that operate an account are not poor, in some cases the people that are not bankable are not enlightened enough or have a few things against the present banking system that if these lapses are fixed and proper enlightenment is done these bunch that are referred to as not bankable will quickly be converted to a great pool of customer base. One other reason people don’t bank is because they don’t see the benefits of banking because the banking system is not rewarding and too strict about granting loan or credit lines so folks are not confident to bank. Thirdly, the banking system doesn’t put into consideration the factor of illiteracy, so there is need for a total overhaul of the entire banking system in Nigeria seeing that the system was not uniquely design for our communities.
Noting that our banks are doing a great job here but meeting the customers every need should be one of the top on their priority list. Most people will want to have their businesses funded by their bank at very low interest rates, great credit rates, more friendly insurance schemes and so on.
Categories Of Banks In Nigeria
There are several kinds of banks all over the world but there are a few that are permitted to do business in Nigeria which is supported by BOFIA (The Banks and Other Financial Institutions)
- Merchant banks;
- Commercial Banks; and
- Specialized Banks, some of which includes non-interest Banks, mortgage banks Microfinance Banks and Development Banks.
All the banks in the country must be one of the above listed types of bank for them to carry out business in this region even they are internationally owned banks and they must be willing to abide to any and all laws that CBN (Central Bank of Nigeria) issues out to continue their operation successfully.
BEFORE START UP:
Gaining Knowledge On The Financial Services Sector
Money is one of the most complicated driving force of any community or group of people and to succeed in the financial sector like banking the owner in question must have a large knowledge base to be able to stay afloat. The individuals financial IQ must be way beyond normal and must understand the modus operandi of the banking sector and banking sector. You must know the financial indexes and guiding principles of this very complex and complicated sector.
- Obtaining Banking Experience
Starting a bank is not like starting a shop or supermarket that you may need little or no experience, study, etc. to start and to run; A broad experience and an in-depth study on other existing banks. Before you start a bank you must of necessity get involved with a bank or more this gives you the experience you need because all about the financial sector are not found in a book or online.
Most owners of banks today were once employee of banks and rose through the ranks to managerial positions or director as the case maybe. When they got the necessary experience they resigned their jobs to chase their passion and dream to won theirs.
Obtaining educational degrees helps to build you knowledge base as regards the sector but that doesn’t mean that without educational degrees you cannot own a bank but you must have much business sense, talents and must be of high financial IQ to be able to survive the treacherous route, all that needs to be done is to have board members and directors with the needed skills and degrees to stand in for you and you also need to belong to the Chartered Institute of Bankers of Nigeria
- Decide On The Type Of Bank You Want To Start
Just as was listed above there are various categories or types of banks that you can decide to start or choose from; you can operate a microfinance bank, commercial bank or a community bank. It is important to note that all these banks have several requirements for owning their licenses, so it is important you make up your mind on which of those criteria you can meet that will be the determinant of which you will open or at the least start with.
- Conduct Feasibility Study Base On Your Category
Most businesses that fail all over the world fails as a result of poor research and adequate feasibility study. To avoid pitfalls and the occupational hazards that exist in starting a bank you must do your study adequately and this may mean that you may be in the middle of another sinking ship to be able to figure out the problem and have a first-hand experience and report on what those unfortunate events can be. If your study is in-depth then you can avoid the flaws of other banks which will give you a great head start and competitive advantage.
When doing feasibility studies there is need to dedicate much of this to studying the market and customers. Which are key parts of the sector knowing well that if you study the market properly and able to get a great customer base then you are in for a smooth ride.
- Raise Your Capital and Partners
One thing that people are careful with aside from their lives and the need to survive through it is their money, no one wants to spend time working and earning a living then lose this money within a twinkle of an eye. Everyone wants their money safe and multiply equally. The idea behind the capital base is to convince the authorities and the customers that you are capable of handling their money and able to save them from future bankruptcy for business owner. The capital base for starting any banking structure is not a chicken change; it varies between categories and runs into millions of dollars.
After knowing the capital base that you need to startup then you must get partners to invest in the bank by selling equities to them. In search for partners you must ensure you get partners that do not have questionable character and wealth so as not to tarnish the image of the bank.
- Obtain Your License From
After all the above conditions have been met then you can approach the authority in this case CBN (Central Bank of Nigeria) to obtain your banking license; it is also important to note that obtaining this license will take a while because they will have to carry out their investigations and follow due process to be sure that the customers money will be safe in your custody. After these investigations are carried out adequately you are sure to be handed this license.
- Register Your Bank Name With Adequate Bodies
You are expected to register your bank name with CAC (Corporate Affairs Commission) this enables you to have uniqueness while doing business. It distinguishes you from other business owners or other banks. In choosing a name for your bank you must choose a name that encourages strength and safety, the name must communicate the values and virtues of your bank to the public.
- Getting Locations For Business
When everything about your licensing and registration is settled, the next move to make is getting location for business; these location cannot be in one place you need to have multiple location for business. Preferable you start with the major cities in the country then after that you can go into other minor cities until you are known nationwide.
Remember that putting these structures in place is not an easy feat; you may decide to buy lands and build from the scratch or leasing buildings and make alterations to suit your business pattern. Furnishing and other gadgets too needs to be purchased and installed properly. Ensure also that these locations are not far from the central area of business, don’t be afraid of competition.
- Marketing And Advertisement
With the banking industry flooded by many other banks, it is also important to note at these point that you have to market and advertise your bank and what the bank have to offer the general public. Everything you do differently and better should be made public by advertisement and marketing, these helps to get new customers that were not bankable or attracting existing bankable customers from other banks.
Be innovative about your products and be quick to advertise them by all means available to you; use all of the media platforms available to reach the masses from social media, website, print media and also sponsoring programs here and there. These put the bank in the lime light and on the good graces of the people.
- Getting Professional Help
After all said and done, you will need to employ professional help to run every branch of your bank. Getting staff of professional repute and admirable character is important and will tell how effective your bank will be.
Laws And Regulations For Banking In Nigeria
These are the key legislations which include the following;
- The Banks and Other Financial Institutions Act (“BOFIA“) this act states that all banks must possess a valid license which is issued under the BOFIA to be able to operate banks in Nigeria.
- Companies and Allied Matters Act (“CAMA“) – Banks operating in Nigeria are corporate bodies which must be incorporated as a company in compliance with the requirements of CAMA Central Bank of Nigeria Act 2007- this Act established the Central Bank of Nigeria as the body in charge of issuing banking license in Nigeria.
- The Central Bank of Nigeria (“CBN“) Regulations on Scope of Banking Activities & Ancillary Matters, No 3, 2010. This repealed the erstwhile Universal Banking License regime and modified the scope and framework for banking business in Nigeria.
3 Requirements For Obtaining Banking License
There are three requirements for obtaining banking license in Nigeria and they are as follows.
(1) Grant of approval in principle
(2) Grant of final license
(3) Pre-commencement of operation requirement
Grant of approval in principle
In the grant of approval in principle you will need to submit a formal application for the grant of the license which should be addressed to the Governor of CBN (Central Bank of Nigeria) and with this application the following supporting document:
- A concise feasibility report of the intended bank in question;
- A draft copy of the Memorandum and Articles of Association of the proposed Bank;
- A list of the shareholders, directors, and principal officers of the proposed Bank and their particulars;
- Application fee; and
- And other documents that CBN may require at the time of the application.
In the event of the successful submission of all information and supporting documents, the shareholders are required to make a deposit into the bank equal to the capital base. After these the CBN governor decides whether to grant the license or not.
Requirements For Grant Of Final License
Within the space of 6months after the grant of approval in principle, all promoters of the said bank must submit application for the grant of a final license supported with the following documents:
- stated licensing fee
- 3 certified true copies of Certificate of Incorporation of the Bank, Memorandum and Articles of Association, Form CAC 2 (Allotment of shares) and Form CAC 7 (Particulars of Directors) of the Bank;
- Evidence of proposed location of head office for the smooth running of daily business
- Bullion vans with necessary security personnel and gadgets;
- Evidence of strong room(safe), a loading bay and other banking equipment adequately installed and banking hall facilities;
- Evidence of installation of I.T. equipment/computerization of activities;
- Letters of offers and acceptance of the entire management team.
Requirements For Pre-Commencement Of Operations
After the final license is granted, before the commencement of business the following documents need to be submitted to CBN showing it is ready to commence operations.
- Evidence of admission into the clearing house;
- Minutes of Pre-Commencement Board Meeting;
- Copy of Shareholders register;
- Draft copy of opening statement of affairs signed by the directors and auditors;
- Copy of share certificate issued to each investor;
- Evidence of readiness of cheques and other security document;
- Evidence of insurance coverage and the insurance policies;
- Evidence of adequate security arrangements.
In conclusion because of the sensitive nature of the financial and banking sector all these above listed steps may take at least a couple of months or even years to achieve depending on how quickly each of these steps are carried out. This is to ensure that the intended newly approved bank is able to handle everything that has to do with public funds. There is huge money and gain in owning a bank which we may not be able to discuss here at the moment and we will just allow you to your own imagination as to what you stand to gain in owning a bank; which range from financial gain to influence in the society.
We wish you all the best as you dive in by taking the first step in starting your own financial institution.
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