How to apply for a micro-finance loan in Nigeria

• This articles explains common steps to follow when applying for a micro-finance loan in Nigeria
• It explains factors you should consider before applying, documentation required, interest rates to expect etc.
• It also highlights the type of collateral and guarantors that may be required before applying for a Micro-finance loan.

Microfinance Banks are established to assist individuals and Small & Medium Scale
Enterprises in obtaining mini credit facilities.

Due to the rigorous process and high interest rates demanded by commercial banks, Microfinance banks were established to assist individuals (salary earners), petty traders and small businesses in securing loans.

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Microfinance credit facilities in Nigeria are given for the following reasons: Business, assets procurement, Agriculture, Educational purposes e.t.c. Therefore, individuals and businesses are eligible for Microfinance loans as long as they meet the requirements stipulated by the bank.

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The interest rate on Microfinance loans ranges from 5%-6% depending on the loan
size.The tenure of the loan depends on the loan type and they could range from:

• 1-3 months
• 4-6 months
• 4-12 months

The maximum maturity date is 18 months however this only applies to businesses whom are granted up to 5 million naira credit facilities.

The following factors should be considered before applying for a business loan:

• In order to prove credit-worthiness, most banks require prospective customers to have an account in the bank which has been active and serviced for at least 6 months.
• It is advisable to distinguish one’s personal account from business account to ensure
  accountability.
• For Small and Medium Scale Enterprises, thorough research must have been carried out about the business before applying for a loan. The business must also be active for at least one year and operating from the same location for at least six months.

Documents required when applying for a Micro Finance Loan

The documents required for a Microfinance loan include:

1. Loan application form
2. Excellent Business Proposal (for SMEs)
3. Letter of Application (for individuals)
4. Valid means of identification (National I.D card, International Passport, Driver’s License)
5. Copy of recent utility bill
6. 4 recent passport photographs
7. Evidence of business location

Collateral

This is optional when applying for a Micro-finance loan. However, large business loans,
agriculture loans and asset procurement loans require a collateral whose value must be equal to or greater than the loan amount.

Guarantors

Petty traders and individuals require guarantors instead of collateral. The minimum
number of Guarantors required by Microfinance Banks is two.

Guarantors must be financially stable and at least 25 years old. It is the duty of the Guarantors to ensure that the loan is paid back when due.

Where there’s a default in repayment by the customer, the Guarantor will be required to repay the loan amount. On the day the loan agreement is signed, the prospective customer and the guarantors are required to sign the agreement.

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Documents required for the Guarantor

1. 2 recent passport Photographs
2. Copy of recent utility bill
3. Valid means of identification (National I.D card, International Passport, Driver’s License)
   Finally, it is pertinent to note that a Microfinance loan can be repaid before it’s due date.

Ijeoma Uhuegbulem is a Business Analyst and writes from Lagos, Nigeria.

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