Untapped wealth in Nigeria's banking and finance industry

…Business opportunities that few people know about

Before going on to the opportunities on untapped wealth in the banking and finance industry in Nigeria, let us ask ourselves the question, why is everybody afraid to go into the banking industry in Nigeria today?

The reason is simple. Most opportunities require huge amounts of money to fulfill licensing requirements. For example to establish a bank in Nigeria one needs the sum of N25 billion as share capital that is expected to be deposited with the CBN.

Other financial institutions ranging from Micro finance bank, mortgage finance institution, money transfer agency and finance company have share capital requirement ranging from minimum of 100 million to five billion naira. However what most serious investors who don’t have the money to put down do is to either team up with money bags who will end up in control of the initiative or have the ideas hijacked in one way or the other.

The initiatives we are presenting here don’t require licence in the first instance. They are easy to set up and run either as brick and mortar or digital businesses. After starting them and acquiring goodwill and substantial customer base, you can thereafter begin to look for any appropriate license in any relevant area that will match your operational focus.

The ten business opportunities

Global FX brokerage

The need for international transfer service far exceeds the available people out there who render the service. When we talk about needs, we are looking at needs in terms of speed (most people prefer services whose delivery of money transferred is instant), source/destination of funds to be transferred (some people reside in some countries with little infrastructure that support fast money transfer) and volume of funds involved. These are the considerations when people want to transfer money from one location to another. Therefore your unique selling point has to be wrapped around any or all of these attributes. For example, if you are able to offer an instant credit transfer service, it will help you capture a substantial market share. In addition if you are able to move funds to help to execute projects along with specific disbursement requirements on behalf of your clients, you will also have a good attraction.

Bank Charges review consulting

Bank and finance charges in terms of COT, VAT or transfer/FG transfer levies, etc., are frequently exaggerated by most banks. Because the amount per transaction is usually negligible, most customers ignore them. However, when added up the cumulative amount may be a dent of close to 5% of the funds in a customer’s account. Anybody who wants to go into this business can start with high end customers, i.e., high income corporate bodies, government establishments and other customers with high volume transactions, i.e., minimum 1 billion Naira monthly. In this direction one will be prepared to check through all records of each customer in order to identify charges that are excessive, that are not approved or that the software erroneously generated. This service is paid for by taking a commission between 15% and 30% of the money saved or recovered on behalf of each customer.

Sale and lease back company

This is a reverse leasing arrangement whereby companies with operating equipment decide to leverage their equipment to raise money without relinquishing possession of same equipment or assets. The sale and lease back arrangement is a creative financing strategy that helps to free up the balance sheet by avoiding loading of liabilities in order to access funds. The sale and lease back consultant is expected to source clients that have assets with considerable long useful life, like production/manufacturing equipment. Income to the consultant is usually on arrangement fee and spread between the rental payable and the assessed cost of the assets. Documentation and accounting treatment follow the same format as in a normal lease and can be captured on-balance or off- balance sheet as many be convenient.

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Block discounting:

This is a specialised financial intermediation service that can be handled in a simple way. A transaction is usually denominated in a stable currency to moderate the effect of inflation and depreciation of local currency. Simply put the service is all about buying the debts of solvent organisations at a discount and make do with domiciliation of payment from debtors of the client. The attraction of this business as an opportunity within the banking and finance industry is the unlimited upside potential in terms of discount income. Funding the business will require some creativity. It is either you raise capital from individual investors and match repayment obligation with your own expectation of payment from your clients’ debtors or you raise funds into a pool from where you will fund your transactions.

International loan sourcing

This business does not require any startup capital apart from goodwill among financial institutions and others who require long term funds to match their portfolio requirements. For example, prospective clients are commercial banks, mortgage banking finance institutions, government agencies at all levels, venture capitalists and corporate bodies. As a brokerage service, the ability to assess the credit standing of clients is key to the success of the business. In addition, funding is denominated in international currencies and it is expected to be disbursed directly for specified use to foster accountability. This business is also time-sensitive in addition to it being context-sensitive. In this direction, all areas in terms of time, culture, economy, language and geographic considerations must be fully aggregated while drawing up relevant agreements.

Foreign stock brokerage service

We are told that there are about one million Nigerians in London alone and the same number in the entire USA as a country. These millions of Nigerians living abroad are either working, studying or doing one thing or the other in those countries. Most of them buy shares of companies in the countries where they live. Eventually a substantial number of them come back to Nigeria with share certificates of those companies and may find it difficult to conduct transactions on them in Nigeria. So this business opportunity which is a service best suited for people with knowledge of finance and stocks, is to act as a broker to assist these people handle transactions on the foreign shares in their possession. The transactions we are talking about relate with selling the shares, buying new ones, monitoring dividend payment and doing what else it takes to use the shares as collateral security for loans and other credit facilities. These services are also required even where the shares are already captured as digital instruments. The foreign shares stock broker will in this regard be acting to give advice on movements of the stocks on relevant stock exchanges where they are traded.

Accessing foreign grants

There are thousands of grants available worldwide for all kinds of purposes. The foreign grants broker’s job is to assist people on how to access those grants. The major demand is to determine the grant a client qualifies for and how to package the application in order for him to secure the grant. At the end of the day it is better for a broker to have a publication that will contain the different grants that are available and the qualifying conditions of each of the grants. In addition, the broker must be knowledgeable about the mindset of each grant provider in terms of some unwritten conditionalities so, as to give valuable advice.

Venture capital sourcing

This is also a brokerage business meant to match those who need venture capital with those who provide venture capital. Venture capital is a form of financial support given to match the precise needs of entrepreneurs in form of long-term capital. It is usually structured as loan, equity or preferred equity or a mix of the three in line with the profile of the need of each applicant. The venture capital broker is expected to assist in preparing the entrepreneur to qualify for accessing the venture capital and tutor him on what to do to ensure that the application for funding succeeds.

Offshore bank

So many countries allow foreign organisations to operate banking institutions in their territories. A lot of these banking institutions are allowed to enable these countries to attract foreign investment, capital and goodwill to their countries. In this direction, the requirements needed to establish these banking institutions are usually very simple so as to attract as many investors as possible. Some of them can be operated both as brick and mortar financial institutions or deployed as digital platform businesses. These institutions are usually given incentives such as tax breaks, residency status for employees, etc., to further attract prospective investors.

Digital co-operative funding company

The co-operative finance model is very popular in Nigeria today. However its ability to reach out to people in as many places at the same time is highly limited because most are set-up around groups who live or work near one another. The limitation is further accentuated by the structure of the co-operative society since its governance is done as a collective. The limitation of being able to provide the service for the benefit of people not too physically close, is addressed by the digital co-operative society where the model of operations is configured to enable real time processing of the activities and transactions of the co-operative. The digital platform enables the operations to be extended to people who are both within and outside the country as long as such operations are streamlined in line with statutory requirements of the host country.

Kola Owolabi is the Principal Consultant and CEO of David Richard Associates, a company he founded in 1998. He is a Business Plan and Feasibility Studies preparation expert and has been very active in the Business Development landscape in Nigeria in the past 25 years. He was a leading consultant in many prominent business development projects in Nigeria, i.e., World Bank Growth and Employment Project (GEM) and YOUWIN Connect (Grading of Business Plans of Applicants). He can be reached on ‪08023203198‬ (WhatsApp line). Editorial assistance provided by Abiola Aroloye.