How to start a micro lending enterprise

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Sunday, May 27, 2012


THIS column, in its two consecutive issues, you learned two micro enterprises for you to start with… ifyou have the passion in it. You will be learning another micro business this time and this is… Starting a Micro Lending Business.

One of the most sought endeavors in finance today is micro lending. This is an activity of lending out of small amounts of money, usually without collateral required from borrowers. The model has been adopted successfully by both profit and non-profit organizations, especially cooperatives, but definitely disregarding the five-six concepts usually given out by loan sharks. Millions of people particularly those micro enterprises have benefited from access to the loans provided by micro lending individuals and or enterprises.

Banks and other financial institutions thought that micro lending is not feasible to venture but found out that small time borrowers were also good payers despite of having higher interest rates than the usual mark-up of banks or financing institutions. This practice, however, became attractive to these large lenders.

If you are planning to start this very promising type of business particularly those who are micro entrepreneurs there are many things to learn to be successful. Here are some pointers for you to find out before you will establish your own micro lending activity:

Foremost, you must have a sufficient start-up capital for this will allow you to have more funds available for lending out. For practical reasons, it is usually best to be located near your target clients. Security must also be a consideration because you will be handling cash. The location being near a bank would lessen the risk of robbery in transit. If possible you have to incorporate your establishment with the Securities and Exchange Commission. Just like the cooperatives are registered with the Cooperative Development Authority.

Another, apply for a business permit at the local government agencies, register your business name at the Department of Trade and Industry. Then, you must know and comply with the laws pertaining to the micro lending business by reading the implementing rules and regulations of the Lending Company Regulation Act of 2007 and some other relevant laws of the Truth Lending Act and the Consumer Act.

You must also learn how to compute the amortization and documentation of loans. This is one of the most important segments of your business so that your clients will be billed correctly. You will know if you are making profit or getting the right margin. Proper documentation is critical later when you have to take legal action if your customer is not a good payer and in order to collect.

To avoid problems of collection that will crop up later and the best way to reduce these losses due to bad debts, just be careful in screening clients. You have to a thorough credit investigation to assess character. If and when these things will happen, you better take advantage of the small claims court in order to minimize your collection expenses. This court will save you in legal expenses. However, the court will only hear cases if the original principal amounts to not more than P100, 000.00; but almost all loans in micro lending are below this amount anyway.

Well, there will always be a big demand for small loans. The micro lending entrepreneur is well placed to cater this need. Want to learn more about this venture, you may contact my e-mail address at: tcayading@gmail.com or text 09179486949 for some details and a one-on-one session.

SEE YOU AT THE TOP!

Published in the Sun.Star Baguio newspaper on May 28, 2012.

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