MICROCAPITAL STORY: United Bank for Africa Group Plc (UBA) of Nigeria Invests $25m to Establish Microfinance Subsidiary, UBA Microfinance Bank Limited

United Bank for Africa Group Plc (UBA) of Nigeria, the largest financial services institution by total assets in West Africa, recently announced that it will invest USD 25 million in initial capital to open a microfinance subsidiary, UBA Microfinance Bank Limited. UBA Microfinance was established to provide poor people who are un-banked or under-banked with access to financial services. UBA’s Chief Executive Officer, Tony Elumelu adds, “We have people in small businesses and they need some advisory services to enable them to run their business right. They have the potentials, the economic conditions are right; but they don’t know how to go about it.”

UBA Microfinance Bank will target a client base that encompasses micro and small enterprises and family and rural business, with an emphasis on businesses owned by women. UBA Microfinance hopes to provide services which include micro lending, micro investment, micro deposits and small business advisory. Elumelu says that UBA will operate “the new [microfinance] bank from within all the [current commercial] branches of the bank in the urban and rural communities, while separate structures [will be] put in place to meet the upsurge in demand of services by the micro-banking public”. Currently, UBA is trying to get approval for establishing six additional branches of the microfinance bank from the Central Bank of Nigeria, the Nigerian government’s central bank founded in 1958.

Founded in 1961, UBA is the result of a merger between United Bank for Africa and Standard Trust Bank (STB), both of which are Nigerian banks. The merger made UBA the largest bank, by total asset size, in West Africa. Today, UBA serves as a commercial and retail bank for 6 million customer accounts in Nigeria and Ghana, with branches in New York and the Cayman Islands. As of September 2007, UBA had total assets of USD 9.7 billion, a 35 percent increase from total assets in September 2006.

Microfinance is a rapidly growing industry in the West Africa region. The Integrated Regional Information Networks (IRIN), a news publication that is part of the United Nations Office for the Coordination of Humanitarian Affairs, reported that, as of October 2006, there are more than 650 microfinance institutions (MFIs) in West Africa serving some 6 million customers. UBA’s founding of a microfinance bank is part of a trend of commercial banks investing increasing amounts in microfinance, as reported by MicroCapital. Large commercial banks such as Citigroup, Deutsche Bank and Morgan Stanley have their own microfinance groups or units. Elizabeth Littlefield, Chief Executive Officer of the Consultative Group to Assist the Poor (CGAP), says that “local commercial banks are beginning to see opportunities at the low end of their retail market.”