How to Setup a Microfinance Bank in Nigeria

Microfinance banks as we have them today evolved from pre-2005 community banks and cooperative societies which carried out informal financial services to the benefit of low income, rural dwellers who were too far from accessing retail banking services from commercial banks or earned too little to even be worth saving or approaching them for loans.

The Central Bank of Nigeria saw this situation and noticed that despite the huge acceptance of the Esusu System (local/informal revolving, interest free loan scheme) was very well received in Nigeria only a few corporate organisations were tapping into this.

Nigeria’s rural poor cumulatively could generate over N280 billion in savings annually (as at 2005) and cheap access to loans and other business funding meant a lot of people could move out of poverty as they fund their micro businesses – especially rural subsistence farmer, petty traders, artisans, low income salary earners and other unskilled labour. 

Business Opportunity for Setting up Microfinance Banks in Nigeria
There are plenty of reasons microfinance banks in Nigeria are needed. But we shall look at only 4 today.

Huge demand for affordable Loans to Micro, Small and Medium sized Businesses 
The number of small and medium sized businesses in the economy that need finance to fund their operations but are unable to do so is really huge. Less than 54% of Nigerians have bank accounts and interestingly many of these people not captured own farms, run small sized commercial ventures and have their eyes set on doing bigger business which without additional funding they will be unable to do. At least N600 billion is requested for by SMEs annually but less than N300 billion is granted.



Increase in Population of SME Businesses Captured in the Formal Sector
More hitherto informal businesses are migrating into the formal sector. For instance, small food retailers like 5 years ago would have grown into medium sized businesses employing from a few to dozens of employees. These employees would somehow need to be captured in a payroll system which would require documentation. The business would need to start paying taxes, pensions etc. But this same business may be better served by a microfinance bank which is closer and more compatible than a commercial bank.

Microfinance Banks are strong drivers of savings among low income earners
Many low income earners may be know the benefits of savings but microfinance banks offer greater services in mobilizing them to save than commercial banks. Low income earners who prefer Esusu scheme for target savings are more likely to patronize an MFB than a commercial bank to open and operate a savings account - the reason being that savings can be a major source of credit and financing to them, which commercial banks are less likely to deliver on.

Challenges of Running Microfinance Banks in Nigeria
In the Nigerian business environment running an MFB is a huge challenge. There are many obstacles and threats which could both slow down or even stifle your success in the business. For instance;

Internal Bank Fraud
While the CBN, EFCC, NDIC, NDLEA and the police have played crucial roles in limiting internal fraud in many MFBs, there are still instances of where bank staff make away with depositors funds. Some MFBs have even folded up because a director made away with huge sums of money under various pretext. This is a reality which they still face till date.

Loan Defaults from some Customers
In comparison to commercial banks MFBs tend to record less loan defaults. In fact petty traders and artisans who are less educated seem more likely to repay a loan than a formal business run by educated people. But there are indications that loan defaults among Nigerian 
MFBs have been on the increase year on year by very small margins.  Loan defaulting has a way of frustrating revolving loan schemes which in turn can discourage further savings.

Misapplication of Loans
Some people will approach a bank to raise a loan for their business but divert it to pay house rent, splash on wedding or cater to another non-business need which could lead to them either not repaying the loan or taking longer than they should.

Mini Commercial Bank Syndrome
A newspaper report quoting the CEO of an MFB noted how most MFBs in Nigeria are struggling to stay afloat. In fact most of them are close to closing down as over 40% of the entire market is captured by just 10 out of 991 existing MFBs. This was attributed to ‘mini commercial bank syndrome’ where the MFBs function like commercial banks and target more of middle level customers than low income earners and micro businesses. According to the CEO when you neglect the core microfinance practice you are heading for insolvency which most MFBs in Nigeria are currently doing.

Setting up a Microfinance Bank in Nigeria is not too hard and offers great Returns
You can actually start a microfinance bank in Nigeria with as little as N20 million operating from just one unit location within a state. Alternatively, you can startup as a state MFB with N100 million startup capital or N1 billion for national MFB. The return on investment (if you manage the business well) can be as high as 35% and this can be realized by your 3^rd year. Your first year is capable of generating over 20% ROI.

Conclusion
Setting up an MFB in Nigeria has stringent requirements but they are not too difficult for serious minded individuals who want to invest in it. Secondly while the market is growing, there are challenges to deal with and but sound management practices can handle most of them. The future of MFBs in Nigeria will likely improve as more people in the informal sector have increased access to financial services.

Want to setup a microfinance bank in Nigeria and need a bankable business plan with detailed industry analysis, market information, financial projections and management setup plan. Give me a call: 0803 206 4106 or email me: paulonwueme@gmail.com to have one prepared for you.

Sample Business Plan Online Fashion Store in Nigeria

An online fashion store in Nigeria is a viable business venture but there are challenges which could potentially stifle its potential to be profitable, sustainable and ensure growth. Nigeria is one of Africa’s fastest growing and largest e-commerce markets and is expected to be worth at least N152 billion ($400 million) in annual sales by 2020. There are at least 150 existing fashion stores with online presence competing for a share of the ever expanding (16.1% annual growth) Nigeria target market. More of this breakdown will be explored in this article. 
 
An online fashion store is an online shop which stocks and sells a range of fashion items such as; hair products, clothing, bags, shoes, wrist watches, belts, cosmetic products, perfumes and designer fabrics among a host of other products. The online fashion store business hasn’t been around for very long with the major players in the market coming on board in 2011 with dealfish (now Olx.com.ng) setting the pace and the entry of other players such as; kasuwa now jumia.com.ng, konga, kaymu among others coming up at various times between then and 2015.

The Opportunity in Nigeria’ Online Fashion Market
In 2014, the Nigerian online retail market was worth at least N800 million per week in gross sales with fashion items capturing a sizeable 25 to 30% of that amount especially clothing and shoes. By 2016, the market has grown to over N1.5 billion a week with at least 105,000 transactions conducted on the two largest online retail stores namely; Jumia and Konga – despite an economic recession.

By 2020 when more Nigerians would have improved online shopping options with the expected development of online payments, the market would experience weekly sales of over N3 billion going by current market growth rates and expected market impact of technology and increased purchasing power of Nigerian shoppers.

The current demand level for online shopping is driven by several social and economic factors among which are; increasing urbanization, improved payment systems, increased brand awareness, cheaper internet access, stronger customer retention strategies and 12 other factors which will progressively increase annual demand by online shoppers for fashion items.

There are strong indications that less than 12% of Nigeria’s potential online market has been captured as at 2017 and this has implications for new entrants into the market as well as the top two market players – Konga and Jumia who currently control over 85% 
of all localized e-commerce transactions in Nigeria.

Challenges with setting up and running an online Fashion Store in Nigeria
There are at least 22 identified challenges that will adversely or moderately affect the success of running an online fashion store in Nigeria but here are a few to take note of;

• There is very stiff competition in the market that new entrants must deal with if the hope to reach their target market.
• Online scams in Nigeria is a major deterrent to online shopping among the potential target market
• Cybercrimes like hacking, identity theft, phising and many others present serious logistical and financial challenges to online stores
• How will customers in rural parts of Nigeria be served with their deliveries
• The high incidences customer complaints which are left unattended to usually create negative backlash for online retail stores
• Creating a trusted and respected brand is very expensive and many new startups must find less expensive ways of doing this which is painfully slow and inefficient

Financial Summary
The financial projections for this financial analysis is based on 5% sales conversion rate and average of N6,000 per transaction and 8 transactions per day for 300 days in a year, cost of sales 79.2% of gross sales.

Startup Summary

• Premium e-commerce website: N250,000
• Inventory: N500,000
• Advertising Budget (6 months): N300,000
• Operating costs (6 months): N630,000
• Contingency: N300,000
• Rent: N300,000
• Other expenses: N600,000
• Total: N2,880,000

Profit and Loss Summary  

• Gross Sales:                 14,400,000   
• Cost of Sales:               11,400,000
• Gross Profit:                  3,000,000   
• Operating Expenses:       1,260,000
• Profit before Tax:           1,740,000
• Taxation:                           522,000
• Profit after Tax:              1,218,000
• Return on Investment:       42.3%
• Breakeven Period:           8^th or 9^th month
• Payback period:              24^th to 30^th month

Conclusion
This is a challenging business to do but there are also plenty of untapped opportunities as the market is not properly served even by the big players. The success or otherwise of this opportunity depends on your ability to meet your sales target which in turn depends on having an effective marketing strategy and a thorough knowledge of market trends and consumer needs. Achieving these requires a detailed marketing plan and the right team to work with to make them happen.

Looking to setup an online fashion store in Nigeria and wish to have a professionally written business plan to help you accomplish setting one up? Give me a call: 0803 206 4106 or email me: paulonwueme@gmail.com

How to Setup a Profitable Beauty, Hair Salon in Nigeria

A beauty salon is a place where mostly women visit to receive beauty treatment/services for their hair, skin, nail or facial needs. There are different forms of beauty salons such as nail salons, hair salons, beauty parlours, cosmetic shops or even spas. Each of these type appeals to different target market needs. Today’s article is merely dealing with the hair aspect of the beauty salon business in Nigeria.

Market Opportunity for Beauty Salons in Nigeria
There is a huge market for haircare products and hair treatment service in Nigeria. Nigeria is Africa’s second largest market for hair products with consumers spending over $210 million (N798 billion) in 2016 on hair extension products alone (both natural and artificial). The average middle class Nigerian woman (21 to 45 years) spends between N9,000 to N30,000 monthly on her hair mostly on extensions.

This is because for most women in Nigeria, their hair is a source of confidence and scruffy looking hair even for a not so classy lady is a nightmare they wish to avoid. As a result they go through a lot of inconvenience to have a really nice hairdo – spending hours at a salon ‘fixing their hair’, saving to raise the required amount to make the next hair style in say 2 or 3 weeks times – even sometimes the buck falls on the men in their lives to foot the bill of styling their hair.

A conservative estimate of this market reveals that at least 5.1 million Nigeria women qualify as target market who can spend within the N9,000 to N30,000 monthly range which means a beauty salon that in a big town or city such as; Lagos, Abuja, Port Harcourt or Benin should be able to attract sizeable patronage if they have an effective marketing strategy in place.

Target Market Summary Hair Extension yearly gross sales in Nigeria

                          

·         Total population: 24.45 million (2010 est.) ·         Urban Population: 13.45 million ·         Middle class Population: 5.1 million ·         Estimated spending for Nigerian middle class women on hair extensions:  N797.6 billion

Challenges of Beauty Hair Salons in Nigeria

• Irregular Power Supply: the main challenge is having adequate power supply to power the different machines required. This doesn’t come cheap because fueling costs and maintenance cost fluctuate very unpredictably and this can affect the bottom line by as much as 30% of gross profit.
• High cost of Rent: as if that is not enough, finding an ideal location for a premium hair dressing/treatment service is both expensive and difficult. If you want to target the middleclass and you can’t afford to find a place within their reach that you can afford, how can you possibly achieve your sales target?
• Difficulty in finding competent hair stylists: professional hairstylists mostly prefer to be self-employed but when they are not, usually don’t come cheap. But that is if you can even find them because they are hard to come by. Which means you’ll have to make do with apprentices and inexperienced hairstylists which may delay your business growth for a while
• Difficult customers: some customers don’t know what they want and even when they know may make ridiculous and frustrating demands. Others may be very rude and aggressive to your staff and may bad mouth you and your business. Dealing with such customers can be difficult especially if they have been patronizing you for long and have even referred others to you.
• High amount of fake/counterfeit hair products: the market has been infiltrated with low quality, cheap imitation hair extension and hair creams/shampoos which makes delivery quality hairstyling difficult and frustrating if your customer insists on buying her own hair style products. 

How much is required to setup a Beauty/Hair Salon in Nigeria
For a small sized operation with 1 main professional stylist and 3 assistants/apprentices, a good breakdown should look like this;

• 2 wall hair driers – N80,000 (N40,000 each)
• 2 hand hair driers – N10,000 (N5,000 each)
• 4 hair straighteners – N16,000 (N4,000 each)
• Stock on hair creams/shampoos – N100,000
• Stock on other hair accessories – N40,000
• 1 year shop rent – N300,000
• 3 months operating costs – N300,000
• Signage and print advert – N90,000
• Furniture – N300,000
• Contingency – N300,000
• Total – N1,536,000

Financial Summary and Projections
Assuming you can on a daily basis attract 6 customers and the salon is open for 300 days in a year with each customer paying on average N4,000 for your service then the projections should look like this;

• First Year Sales – N7,200,000
• Cost of sales – N2,880,000
• Gross profit – N4,320,000
• Total Expenses – N1,800,000
• Profit before tax – N2,520,000
• Taxation – N756,000
• Profit after tax – N1,764,000
• Payback period – 10^th or 11^th
• Return on Investment – 115% within 12 months

Conclusion
You can recover your initial investment within your first year if you can achieve your sales target and minimize your operating costs. There is stiff competition in this business but there is also plenty of room to succeed - as this business favours innovative service and marketing approach.

Are you looking to start a hair/beauty inclined business in Nigeria and need a well-researched, well written business plan? Give me a call: 0803 206 4106 or email me: paulonwueme@gmail.com for details

How much does it Cost to Write a Professional/Standard Business Plan in Nigeria?

In this article, I will be attempting to answer this question - for any serious prospect ready to write a professional standard business plan prepared for his/her peculiar business needs. This question is important because it serves as a guide in the selection process so that you can actually work optimally with your budget and avoid wasting your money on the wrong type of business plan writer or even worse getting served with a watered down/poor quality business plan – usually copied online.

First before answering the question it is important for me to state there are two important facts you must not overlook when finding the right price for a business plan in Nigeria and these facts are;

Fact #1 - there are professionally written and low quality business plans being peddled for sale
There are low quality business plans which are craftily and dishonestly packaged as standard/professional business plans by people who clearly don’t know how to write any form of business document using standard business language and tone. Just as there is good quality, custom written business plans which are professionally written and which will be specific for your own business needs – not one that is written for any business and sold to you as if it will work for you. I’ll explain more about them shortly.

Fact #2 - there are real professional business plan writers and there are quacks pretending to be professionals
There are many quacks masquerading as professional business plan writers and there are few professional business plan writers in Nigeria. The quacks you can identify easily in three ways. First way and this is an easy giveaway is with their poor command of English. When you read their blog posts you can easily spot errors in their use of tenses, irrelevant ideas explored and poor analysis.

Another way to identify them is their lack of originality. There is no way a good business plan writer would be an expert in copying and lifting contents from other sources and still have the right imagination to write a business plan for you that will measure up to the minimum standard which very well informed bank officials and investors would be looking out for.

Thirdly you can identify the quacks with their lack of specialization. They are into many things, promoting network marketing programs, affiliate products, claiming to be motivational speakers, trying to sell you worthless ebooks they themselves can’t use because of the irrelevance of the expressed ideas and poor research put into writing it, claiming to be experts in many fields e.g agriculture, ecommerce, internet startups, supply chain management etc but the age of the business plan writer often shows he or she is both very young and is at best qualified for a junior management position – imagine being an expert in many fields but at the same time doing full time, small scale business plan consulting, how do they tally?

Prices of Different Business Plan Options in Nigeria
Here is a shortlist of different business plan options with their respective price range;

Free/Sample Business Plans – this costs nothing
You can easily find these business plans online when you do a search on google or bing. They are usually complete and have standard formats to work with but if you choose one of these business plans make sure you edit it well and paraphrase properly especially if you want to show a bank or investor. Secondly adapt the business plan to the Nigerian environment and in particular to your own business but also ensure that you also tweak the business plan format to match with your business opportunity and business plan needs. 

How much is a Pre-written Business Plan in Nigeria? - N5,000 to N15,000
These are already written business plans available for sale and for this price range it seems very attractive but I must warn you here, do not buy any of these types if you want to present it to a bank, business plan competition or investor because it has not been written for your own business. The person who wrote this is dishonest to claim you can submit this type of business plan to any bank, investor or submit to any business plan competition.

Imagine if 100 people buy this type of business plan to submit for a business plan competition and many of them are in the same business. That means there will be many similar business plans which will scuttle your chances of getting funded and this is even worse when you are dealing with banks.

Secondly when he wrote it, he wasn’t thinking about whether your business is located in Abuja, Lagos, Benin or Port Harcourt. Business success sometimes depends on location and also target markets differ and consumer behaviours in one region may differ from another region.

Thirdly, the business plan is outdated. Imagine a business plan for Maize farming for instance written in 2007 being sold to you for use in 2017. There have been a lot of changes in Agriculture over the last 10 years in terms of government policies, farming practice, resources farmers can access, new market situations etc but the person who wants to sell this to you doesn’t care about this except of course taking your money.

How much is a Custom written Business Plan in Nigeria? It’s N20,000 and above
For this type of business plan there are many price options so it is hard really to say it would cost you so and so amount. But here is what you should know about the price, it depends on the business plan writer, the type of business, the expected delivery date of the business plan and sometimes even the amount of capital the client is targeting.

Some business plan writers have a flat rate which they charge for any kind of business and they don’t negotiate prices with the client – either you pay what they are asking for or you simply have to move on to patronize someone else whereas some other business plan writers are willing to negotiate price with you provided you can agree to their terms.

With the bank of industry though many of their accredited SME consultants can charge you as little as N20,000 to prepare a business plan but there are others that don’t charge less than N150,000.

There are also other specialist business plan writers who charge at least N600,000 for a business plan but these are high level, highly experienced and very competent business plan writers who on their own are business consultants to large organisations and only do business with high net worth individuals and groups. 

Final thoughts on how much you should pay for a Business Plan in Nigeria

But for small sized entrepreneurs looking for affordable business plans to buy in Nigeria this is my suggestion. If your budget is between N20,000 to N50,000 and the business plan writer is not willing to negotiate his fee with you, try another business plan writer – but be careful so you don’t patronize quacks. If your budget is above N50,000 first ask the business plan writer for his fee, if he mentions it and it’s non-negotiable but within your budget then you are good to go.

If you wish to buy a custom/professionally written business plan in Nigeria, you can give me a call: 0803 206 4106 or email me: paulonwueme@gmail.com for details

Top 5 Most Profitable Crop Farming Businesses to Start and Run in Nigeria

If you are looking to start a crop farming business in Nigeria and wondering just where to start looking for ideas, there are a few I would share with you in this article. In fact they are the most profitable crop farming businesses to do in Nigeria as at 2017 based on their return on investment. 

Interesting thing about these farming businesses is that they can be started on a small scale with as little as N100,000 and you can be sure of getting your money back within a very short period of say a few months. But let me warn, while they are profitable they are also very risky businesses to do and I will explain the risks involved in these businesses.

Challenges of running a Farming Business in Nigeria

Firstly you must consider certain things first before looking to go into farming.

• Farming is a very tedious and labour intensive business to do in Nigeria. Mechanized farming which would have removed the labour intensive part is very expensive to setup and is out of the question for many small scale investors seeking opportunities in Agriculture.
• There are regulatory and policy challenges to deal with. There are not enough policies to support farming as a business and the few policies in place are not well implemented.
• There are marketing issues like how will you evacuate your farm produce to the market? How will you secure the best price for your produce? If you want to export your farm produce how will you locate international buyers or if you want to sell locally how will you get reliable processors and traders who will pay meaningful amounts for your produce? Even joining a farmer’s cooperative may not solve all these problems.
• There is problem of optimal production which involves having the right farming mix, techniques and input that will maximize yields from your farm. How will you get affordable and fertilizer, extension services, quality seed varieties, pesticides? etc
• There is the problem of storage of your produce. At least 20% of harvested farm produce gets wasted due to poor storage facilities. This must negatively affect your profit potentials.
• Pest and diseases can ravage your crops whether those on the field or the ones you have harvested and stored in your barns and farm storage. In 2015, more than 80% of tomato crops in Nigeria were destroyed by a farm pest called ‘Tula Absoluta’ which many nicknamed “Tomato Ebola”.

But even after all these, farming can be profitable once you learn the right approach and build a reliable business to identify and overcome your business challenges.

The 5 most profitable farming businesses to do in Nigeria

These are the most profitable farming businesses to do in Nigeria in 2017 because there is a huge local market for them and they also offer farmers attractive profit margins. Let’s set the ball rolling with;

#1 Soya Beans or Soybean Farming

Soy bean farming is the most lucrative farming business to do in Nigeria. Farmers in this business make at least 106% - 200% return on investment for each planting season. That means if you invest N100,000 into small scale soybean farming, you should make at least N 106,000 profit after selling your produce, what’s more there are always ready buyers willing to take your produce once you have your harvests ready for evacuation.

#2 Rice Farming

Rice farming makes between 60-150% return on investment for each planting season. Rice can be produced twice yearly and the market demand for rice has always been on the increase since independence. There has never been a year in which annual demand for rice declined compared to the previous year and Nigeria is the second largest importer of rice in the world.

#3 Maize Farming

Growing maize is becoming increasingly more lucrative than previous years. This is because many large scale buyers of maize now approach farmers directly through their cooperatives to source for their products at much higher prices than the farmers would get if they sold directly to middlemen traders. These large scale farmers include; poultry farms, Animal feed mills and food processing companies. Also government has recently supplied many maize farmers with improved seed varieties which yield more and are more resistant to diseases. 40-120% return on investment on every planting season.

#4 Tomato Farming

Tomato farming is volatile but still profitable. It isn’t suitable to do in the southern part of Nigeria because the best varieties grow in the North were the right soil, temperature and rainfall are present. With the advent of local production of tomato paste and with huge investment by Dangote and Erisco foods who have both invested over N8 billion in 3 years in processing local tomatoes into paste you can be sure of making quick sales. But there are two catches. First you must be located within the right planting zone where these companies can reach you and you must join the right farmers’ cooperative. The return on investment is 30-100% for each planting season.

#5 Cotton Farming

Cotton can be processed into animal feeds, crushed to produce oils, is useful in the pharmaceutical industries, textile industries for making khaki, underwear, fishing nets, book covers and more. Even if there is no local market for it, the international market demand for cotton is huge and Nigeria even if it can produce 3 times is current level would not be able to meet its own quota of existing global. The return on investment is between 20 to 80% for every planting season.

I wish I could go on but this article must have an end and unfortunately it is at this point but you can learn more about farming techniques and marketing plans you can pursue for each of these farming businesses if you intend to do any of them.

Give me a call or send me an email if you need a business plan on any of these businesses. My phone number: 0803 206 4106 and email: paulonwueme@gmail.com