Loan-sharking was the name given to high-interest loans from private individuals a couple of centuries ago. Today, any entrepreneur versed in the banking sector can join this world and set up a microfinance company.
To imagine the scale of earnings, consider the standard offers in the MFI segment. Customers willingly take loans at 2% a day with the obligation to return the amount and interest in a month. As a result, a year’s worth of appliances or shoes costs 762% per annum. Unbelievable, but it works!
Microloans
Clients willingly take out loans at 2% a day with an obligation to pay back the amount and interest in a month.
Potential clients of such companies are people who live from paycheck to paycheck and, if payments are delayed, are forced to seek funds for current needs. It seems inconvenient for them to apply to a bank for small sums (and the fact that the application for a loan will not be approved), so they go to private individuals.
Before opening a financial institution from scratch, we recommend to get acquainted with its main advantages:
- quick and unburdensome registration procedure;
- the absence of licensing;
- no obligatory insurance fees;
- No restrictions on the amount of initial capital.
In order for an open credit agency to bring in a steady income, study the business from within. You can personally visit several businesses, ask for a loan and compare their approaches to customer service. Trying to beat all competitors is an impossible task.
Your goal is to formulate your own concept and find a niche in which you will become a leader. By evaluating the weaknesses and strengths of the market players, you will be able to take advantage of the successes and avoid the bottlenecks in your work, which slow down the growth of profits.
How is an MFI different from a bank?
There are differences between a bank and a microfinance-type lending institution that you should take into account before starting your own venture.
Loan amount. The maximum loan that an MFI has the right to disburse is 1.5 million.
Restrictions on currency.
Loan terms and conditions. MFIs not allowed to change the conditions of the loan (fixed interest rate, commitment period, commissions, etc.).
A limited number of operations. For example, MFIs don’t participate in securities trading on the market.
Loyalty. A private organization has less stringent requirements for borrowers and often forgives them a bad credit history, in return for taking a high interest rate on the loan.
Which format of organization to choose?
There are several formats of enterprise organization. So, you can become the sole owner of the firm, involve co-founders in the process (credit consumer cooperative format) or buy a franchise.
Independently opening an MFI
To start a project on your own, you need at least a basic knowledge of working with borrowers, including problem borrowers. The upside of owning a company on your own is that you can count on impressive dividends and profits that you won’t have to share.
You can open a microfinance organization on your own in three schemes:
- With remote work with borrowers through the Internet;
- Through the issuing points in your city;
- Combining both of these options.
You can even work without a legal department and security service. Solving repayment issues from troubled debtors can easily be transferred to a collection agency.
Credit Cooperative
A credit cooperative is a voluntary association of citizens on a professional, territorial or other basis, the purpose of which is to meet the financial needs of its members.
To establish a cooperative you will need:
- Creation of a regulatory group of 3-5 people;
- The development and signing of notarized documents;
- Writing a charter.
Once all the preliminary steps have been taken, all that remains is to register the organization.
Buying a franchise
From the financial and organizational sides it is more convenient to buy a franchise known brand. In this case, most of the costs are borne by the main partner. At the disposal of the subsidiary company provides:
- accounting and legal support;
- software;
- promotional materials;
- trainings and training courses for employees.
As a result, the risk of non-return of funds is seriously reduced, and the rate of return on investment increases. Of the disadvantages, the most noticeable is the high entry threshold. Therefore, when choosing a franchise, carefully study the conditions, including the amount of regular payments, the degree of participation in the process of the parent company, etc.
Company registration: documents and taxes
The next thing you need to open a microfinance organization is to get registered. The optimal form of ownership is an LLC.
