Series #1: MICRO-FINANCE BUSINESS
Starting a Micro Finance Company With No Money – A Complete Guide.
Do you want to start a micro finance company? If YES, here is a complete guide to starting a micro finance business with NO money and no experience.
Okay, so we have provided you an in-depth sample micro finance business plan template. We also took it further by analyzing and drafting a sample micro finance marketing plan backed up by actionable guerrilla marketing ideas for micro finance businesses. In this article, we will be considering all the requirements for starting a micro finance business. So put on your entrepreneurial hat and let’s proceed.
Why Start a Micro Finance Company?
Loads of investors and entrepreneurs are interested in owning a bank but they find it difficult to meet the expected capitalization for a bank and also the requirements needed to obtain a banking license. If you are indeed interested in owning a bank but don’t have what it takes to own one, then you should focus on starting a micro finance bank; the capitalization and license requirements for a micro finance bank is far lower than a standard bank.
Starting a micro finance bank can be demanding and risky at the same time, but if you have done your due diligence before venturing into the business, you are likely not going to run at a loss. First and foremost, you are expected to have experience in the financial industry. It will pay you to study accountancy or banking and finance if indeed you want to venture into this line of business.
It is very needful that you analyze the existing micro finance banks in and outside of your area. Know how many there are. Also, you would be required to check the existing competition, as well as know their strength and weaknesses. Knowing the weaknesses of the existing micro finance banks around you means that you would be able to learn from their mistakes and in turn come up with a better and more preferred micro finance banking services devoid of the mistakes and weaknesses of others.
So, if you have done the required feasibility studies and market research, then you might want to venture into this business. If you have been tinkering with starting your own micro finance bank, but do not know how to go about it, then you should consider going through this article; it will sure give you the needed guide and direction.
Starting a Micro Finance Company With No Money – A Complete Guide
Industry Overview
Micro money lending (Microcredit or Microloans as it is also called) are small loans that are given by individuals rather than banks or other related financial institutions. These loans can be given by a single person or gathered across a number of persons who each contribute a portion of the total amount. The micro money lending business is a business that is part of the micro finance industry.
Micro money lenders basically give out loans of $50,000 or less to startups and other small-scale businesses or individuals. More often than not, micro loans are given to people in Third World countries, where traditional financing is not available, to help them start small businesses.
Micro lenders receive interest on their loans and repayment of principal once the loan has matured. Due to the fact that credit status of these borrowers may be quite low and the risk of default high, micro loans command above the average market interest rates making them attractive for investors to come in.
Statistics show that as at 2009, an estimated 74 million men and women held microloans that amounted to US$38 billion. Grameen Bank reports that repayment success rates are between 95 and 98 percent.
The Micro Money Lending cum Micro Finance industry is indeed a thriving and profitable industry especially in third world countries like Bangladesh (where it originated from), Botswana, South Africa, Kenya, Uganda, India and a host of other countries.
The Micro Money Lending cum Micro Finance industry will continue to blossom because people and small and medium scale businesses will always need financial services from micro finance banks. Despite the fact that the industry seems over-saturated, there is still room big enough to accommodate aspiring entrepreneurs who intend opening their own micro finance banks.
Over and above, starting a micro finance bank requires professionalism and a good grasp of how micro finance banking works. Besides, you would need to get the required certifications and licenses and also meet the standard capitalization for such business before you can be allowed to start a micro finance bank in the United States. The industry is heavily regulated to guard against financial fraud, money laundry and criminality.
Starting a Micro Finance Company With No Money – Market Research and Feasibility Studies
Demographics and Psychographics
The demographic and psychographic composition of those who require the services of micro finance banks cut across people and start-ups who need a structured daily savings plan or access to quick loans but don’t have the requirements to access these loans from banks and other standard financial lending institutions.
So, if you are looking towards defining the demographics for your micro finance bank, then you should make it all encompassing. It should include start-ups, mom and pop business owners, artisans, aspiring entrepreneurs and workers within your area of operation.
List of Niche ideas Within the Micro Finance Industry That You Can Specialize in
There are no niche ideas within the micro finance banking industry; micro finance banks basically give out loans of $50,000 or less to startups and other small-scale businesses or individuals and also carry out micro finance banking activities such as daily savings/contributions. Some micro finance banks may also operate on the internet; that is, people can access their micro loans without physically residing within the locations where the micro finance bank is located.
The Level of Competition in the Micro Finance Banking Industry
The level of competition in the micro finance banking industry does not in any way depend on the location of the business since most micro finance banks and other micro money lending ventures can operate online and from any part of the world and still effectively compete in the micro money lending industry.
But over and above, there are several micro money lending ventures and micro finance banks scattered all around the United States and in the cyber space. So, if you choose to start your own micro finance bank in the United States, you will definitely meet stiff competition not only amongst micro finance banks and micro money lending ventures in the United States, but also all over the globe especially if you choose to also operate online. Besides, there are well- established micro finance banks and micro money lending firms that determine the trends in the industry and you should be ready to compete with them for clients.
List of Well – Known Brands in the Micro Finance Industry
In every industry, there are always brands who perform better or are better regarded by customers and the general public than others. Some of these brands are those that have been in the industry for a long while and so are known for that, while others are best known for how they conduct their businesses and the results they have achieved over the years.
These are some of the leading micro finance banks and micro money lending services firms in the globe;
ASA – Bangladesh
Bandhan (Society and NBFC) – India
Banco do Nordeste – Brazil
Fundación Mundial de la Mujer Bucaramanga – Colombia
FONDEP Micro-Crédit – Morocco
Amhara Credit and Savings Institution – Ethiopia
Banco Compartamos, S.A., Institución de Banca Múltiple – Mexico
Association Al Amana for the Promotion of Micro-Enterprises – Morocco
Fundación Mundo Mujer Popayán – Colombia
Fundación WWB Colombia – Cali – Colombia
Consumer Credit Union ‘Economic Partnership’ – Russia
Fondation Banque Populaire pour le Micro-Credit – Morocco
Microcredit Foundation of India – India
EKI – Bosnia and Herzegovina
Saadhana Microfin Society – India
Jagorani Chakra Foundation – Bangladesh
Grameen Bank – Bangladesh
Opportunity Fund
Accion New Mexico
CDC Small Business Finance Corp.
Economic Analysis
When it comes to starting micro money finance bank, you just have to get your feasibility studies and market research right before venturing into the business. It is good to mention that micro finance banking services is not for rookies; it is for professionals who have successfully gathered the required experience and expertise to handle such business. But an aspiring entrepreneur can learn ropes on the job. You just have to be careful so that you won’t get swindled.
Starting this kind of business definitely entails that you raise plenty of startup capital (pool cash from interested investors). If you are already a wealthy person, this might not be an issue. Conversely, if you cannot, you may want to consider pulling the resources from family and friends. Depending on the scale at which you want to start from, you might require as much as multiple thousands of dollars to take off.
If you get your economic and cost analysis right before launching the business, you may not have to stay long before you break even.
Starting Your Micro Finance Bank Venture from Scratch vs Buying a Franchise
When it comes to starting a business of this nature, it will pay you to buy the franchise of a successful micro finance bank as against starting from the scratch. Even though it is relatively expensive buying the franchise of a micro finance bank, but it will definitely pay you in the long run.
But if you truly want to build your own brand after you must have proved your worth in the micro finance banking services industry or other related financial services industry, then you might just want to start your own micro finance bank from the scratch.
The truth is that it will pay you in the long run to start your micro finance bank from the scratch. Starting from the scratch will afford you the opportunity to conduct thorough market survey and feasibility studies before choosing a location to launch the business.
Possible Threats and Challenges You Will Face When Starting a Micro Finance Bank
If you decide to start your own micro money lending services firm today, one of the major challenges you may face is the presence of well-established micro finance banks, micro money lending firms and also other related financial lending institutions (banks, mortgage banks and payday loan services firm et al) who are offering same services that you intend offering. The only way to avoid this challenge is to create your own market.
Some other threats that you are likely going to face as a micro finance bank operating in the United States are unfavorable government policies, the arrival of a competitor within your location of operation and global economic downturn. There is hardly anything you can do as regards these threats other than to be optimistic that things will continue to work for your good.
Starting a Micro Finance Company With No Money – Legal Matters
Best legal entity to use for a finance business
When considering starting a micro finance bank, the legal entity you choose will go a long way to determine how big the business can grow.
You have the option of either choosing a general partnership or limited liability company which is commonly called an LLC for a business such as a micro finance bank. Ordinarily, general partnership should have been the ideal business structure for a small scale micro finance bank especially if you are just starting out with a moderate startup capital. But people prefer limited liability Company for obvious reasons.
As a matter of fact, if your intention is to grow the business and have clients both corporate and individual from all across the United States of America and other countries of the world, then choosing general partnership is not an option for you. Limited Liability Company, LLC will cut it for you.
An LLC protects you from personal liability. If anything goes wrong in the business, it is only the money that you invested into the limited liability company that will be at risk. Limited liability companies are simpler and more flexible to operate and you don’t need a board of directors, shareholders meetings and other managerial formalities.
These are some of the factors you should consider before choosing a legal entity for your micro finance bank; limitation of personal liability, ease of transferability, admission of new owners, investors’ expectation and of course taxes. You can start this type of business as limited liability company (LLC) and in future convert it to a ‘C’ corporation or an ‘S’ corporation especially when you have the plans of going public.
Catchy Business Name Ideas Suitable for a Micro Finance Bank
Generally, when it comes to choosing a name for a business, it is expected that you should be creative because whatever name you choose for your business will go a long way to create a perception of what the business represents.
If you are considering starting your own micro finance bank, here are some catchy names that you can choose from;
Silver Bird Micro Finance Bank, LLC
Life Line Micro Finance Bank, Inc.
Trend Vibes Micro Finance Bank, LLC
Calyx Group Micro Finance Bank, Inc.
Santiago Anglican Community Micro Finance Bank, LLC
Fleming Hills Micro Finance Banks, LLC
James Capstone Micro Finance Bank, LLC
Beach Land Micro Finance Bank, Inc.
CPC Micro Finance Bank, Inc.
Gill Gates Micro Finance Bank, Inc.
Shannon Stevens Micro Finance Bank, Inc.
Range Hills Micro Finance Bank, Inc.
Insurance Policies
In the United States and in most countries of the world, you cannot operate a business without having some of the basic insurance policy covers that are required by the industry you want to operate from. So, it is imperative to create a budget for insurance policy covers and perhaps consult an insurance broker to guide you in choosing the best and most appropriate insurance policies for your micro finance bank.
Here are some of the basic insurance policy covers that you should consider purchasing if you want to start your own micro finance bank in the United States of America;
General insurance
Risk Insurance
Credit insurance
Deposit insurance
Financial reinsurance
Lenders mortgage insurance
Health insurance
Liability insurance
Workers compensation
Overhead expense disability insurance
Business owner’s policy group insurance
Payment protection insurance
Intellectual Property Protection/Trademark
If you are considering starting your own micro finance bank, usually you may not have any need to file for intellectual property protection/trademark. This is so because the nature of the business makes it possible for you to successfully run the business without having any cause to challenge anybody in court for illegally making use of your company’s intellectual properties.
Is Professional Certification Needed to Run a Micro Finance Company?
Professional certification is one of the main reasons why most micro finance banks stand out. If you want to make impact in the micro finance banking services industry, you should work towards acquiring all the needed certifications in your area of specialization. Certification validates your competency and shows that you are highly skilled, committed to your career, and up-to-date in the competitive market.
These are some of the certifications you can work towards achieving if you want to run your own micro finance bank;
Micro-Lending License
Certificate in Microfinance Banking Operations
Please note that you cannot successfully run a micro finance bank in the United States and in most countries of the world without acquiring professional certifications and business licenses, even if you have adequate experience cum background in the industry.
List of Legal Documents You Need to Run a Micro Finance Bank
These are some of the basic legal documents that you are expected to have in place if you want to legally run your own micro finance bank in the United States of America;
Certificate of Incorporation
Business License and Certification/Micro Finance Banking License
Business Plan
Non – disclosure Agreement
Employment Agreement (offer letters)
Operating Agreement for LLCs
Insurance Policy
Consulting contract documents
Online Terms of Use
Online Privacy Policy Document
Apostille (for those who intend operating beyond the United States of America)
Company Bylaws
Insurance Policy
Memorandum of Understanding (MoU)
Financing Your Micro Finance Bank
Asides from the required capitalization and pool – funds to invest with, starting a micro finance bank can be cost effective. Securing a standard office in a good business district, equipping the office and paying your employees are part of what will consume a large chunk of your startup capital.
No doubt when it comes to financing a business, one of the major factors that you should consider is to write a good business plan. If you have a good and workable business plan document in place, you may not have to labor yourself before convincing your bank, investors and your friends to invest in your business.
Here are some of the options you can explore when sourcing for startup capital for your micro finance bank;
Raising money from personal savings and sale of personal stocks and properties
Raising money from investors and business partners
Sell of shares to interested investors
Applying for loan from your bank
Pitching your business idea and applying for business grants and seed funding from donor organizations and angel investors
Source for soft loans from your family members and your friends.
Choosing a Suitable Location for your Micro Finance Company
Micro finance banks and most financial services based type of businesses require that you see physically with your clients hence it must be located in good location; a location that is prone to both human and vehicular traffic and a location that is at the epicenter of a business district if indeed you want to attend to loads of clients and maximize profits from the business,
Most importantly, before choosing a location for your micro finance bank, ensure that you first conduct a thorough feasibility studies and market survey. The possibility of you coming across similar business that just closed shop in the location you want to open yours can’t be ruled out. This is why it is very important to gather as much facts and figures before choosing a location to set up your own finance bank.
These are some of the key factors that you should consider before choosing a location for your delivery and courier Services Company;
The demography of the location
The demand for the services of micro finance banks in the location
The purchasing power and business activities in the location
Accessibility and road network of the location
The number of micro finance banks and micro money lending ventures in the location
The local laws and regulations in the community/state
Traffic, parking and security
Starting a Micro Finance Company With No Money – Technical & Manpower Details
On the average, there is no special technology or equipment needed to run this type of business except for customized micro finance banking software, social media management software applications and other financial related software apps.
But you will definitely need computers/laptops, internet facility, telephone, fax machine and office furniture (chairs, tables and shelves). Some of these items can be gotten as fairly used especially from organizations who are selling off or auctioning their office furniture, computers and equipment.
If you have enough capital to run a standard micro finance bank, then you should consider the option of leasing a facility for your office.
As regards the number of employees that you are expected to kick start the business with, you would need to consider your finance before making this decision. Averagely, you would need a Chief Executive Officer or President (you can occupy this role), an Admin and Human Resource Manager, Head of Operations, Risk Manager, Operation Staff, Accountant, Business Development Executive/Marketing Executive, Loan Officers, Debt Collectors and Customer Service Officer.
Over and above, you would need a minimum of 10 to 20 key staff to effectively run a medium scale but standard micro finance bank. If you are just starting out you may not have the financial capacity or required business structure to retain all the professionals that are expected to work with you which is why you should make plans to partner with other financial consultants/experts that operate as freelancers.
The Service Delivery Process of a Micro Finance Bank
On the average, the way micro finance banks work is similar, but ideally a micro finance bank is expected to first and foremost build a robust company profile before sourcing for working capital.
Basically, micro finance banks operate in the same way other banks and micro lending services firms do. They get people to invest with them and pay them interest, while lending out that money to people who ask for loans and charge interest on those loans.
The difference between micro finance banks/micro lenders and banks is that banks have a ceiling on the amount of interest they can charge, which is stipulated in the Usury Act. Micro lenders can charge any interest rate they like because of an exemption in the Usury Act.
It is important to state that a micro finance bank may decide to improvise or adopt any business process and structure that will guarantee them, good return on investment (ROI) efficiency and flexibility; the above stated business cum services process is not cast on stone.
Starting a Micro Finance Company With No Money – The Marketing Plan
Marketing ideas and strategies
As a micro finance bank, you would have to prove your worth over and over again before attracting investors and individuals to give you the needed liquid cash/working capital. So, if you have plans to start your own micro finance bank, it will pay you to first build a successful career in the financial services industry.
People and organizations will only commit their money under your care if they know that they are going to get good returns on their investment.
So, when you are drafting your marketing plans and strategies for your micro finance bank, make sure that you create a compelling personal and company profile. Aside from your qualifications and experience, it is important to clearly state in practical terms what you have been able to achieve in time past as it relates to the financial services industry and the organizations you have worked for. This will help boost your chances in the market place when sourcing for clients/investors.
Please note that in most cases, when sourcing for funds from banks and other financial institutions, you will be called upon to defend your proposal, and so you must be pretty good with presentations. Here are some of the platforms you can utilize to market your micro finance bank;
Introduce your business by sending introductory letters alongside your brochure to all the corporate organizations, households, mom and pop businesses, start-ups, small and medium scale businesses in the location you intend operating your business
Advertise your business in relevant financial magazines, radio and TV stations (make yourself available for micro finance banking services related talk shows and interactive sessions on TV and Radio)
List your business on local directories/yellow pages
Attend international micro finance and financial services expos, seminars and business fairs
Create different packages for different category of clients in order to work with their financial needs as it relates to savings, micro loan and interest rates
Leverage on the internet to promote your business
Join local chambers of commerce and industries around you with the aim of networking and marketing your services; you are likely going to get referrals from such networks.
Engage the services of marketing executives and business developers to carry out direct marketing
Strategies to Boost Your Micro Finance Brand Awareness and Create Your Corporate Identity
If your intention of starting a micro finance bank is to grow the business beyond the city where you are going to be operating from to become a national and international brand, then you must be ready to spend money on promotion and advertisement of your brand.
In promoting your brand and corporate identity, you should leverage on the print, electronic and social media (the internet). As a matter of fact, it is cost effective to use social media platforms to promote your brand, besides it is pretty much effective and wide reaching.
Below are the platforms you can leverage on to boost your brand and to promote and advertise your business;
Place adverts on financial magazines and related newspapers, radio and TV stations.
Encourage the use of word of mouth publicity from your loyal customers
Leverage on the internet and social media platforms like; YouTube, Instagram, Facebook, Twitter, LinkedIn, Snapchat, Badoo, Google+ and other platforms to promote your business.
Ensure that you position your banners and billboards in strategic positions all around your city
Distribute your fliers and handbills in target areas in and around our neighborhood
Contact corporate organizations, households, mom and pop businesses, start-ups, small and medium scale businesses in the United States et al by calling them up and informing them of your organization and the services you offer
Advertise your business in your official website and employ strategies that will help you pull traffic to the site
Brand all your official cars and ensure that all your staff members and management staff wears your branded shirt or cap at regular intervals.
