The potential is HUGE for Microfinance Lending to be a Money Making Machine and a way to express generosity by helping the poor. Deutsche Bank in 2007correctly called it as an “Emerging Business Opportunity”.
Every nook and turn in our community I can see Sari-Sari Stores, Bananaque or Barbeque Stand owned by Nanays and Ates. These serve as either a supplemental income for the household or as main source of livelihood. This alone tells me that Pinoys are born entrepreneurs.
These Nanays and Ates belong to the lower income estrata of our society. As such they are deprived of access to financial support to help their microbusiness grow.
This circumstance forces them to go to “Loan Sharks” for financing. In turn they are charged on the so-called “5-6” system or an interest of 20% per month. At this point though, interest rate is the least of their concerns. On top of their priority is the ready source of fund at the quickest possible time. As a result, the Loan Sharks are getting wealthy.
There are only 5.1M microfinance borrowers served by Rural Banks, NGOs and Cooperatives (June 2010 http://www.microfinancecouncil.org). Which means that roughly 80% of the microfinance sector in the Philippines is unserved/underserved. And this is where the investment opportunity unfolds.
While the microfinance sector individually owns little, but considering they dominate in matter of numbers in the Philippine population, makes it a very fertile ground – a huge client base. W. Sycip, the son of Albino Z. SyCip, co-founded China Bank, called it “Financial Power of the Poor”.
Based on my research and 15 years experience in the microfinance sector, the Return on Investment ranges from 30% to 45% every year, making it one of the most profitable investment opportunity there is. In fact, I am currently operating a microfinance company which started operations 5 years ago. At present it is producing a net Return of Investment of 79.60% every year.
The uninformed however believes that the risk to the investment is high. But the collection rate of good MFIs is 98%. My experience shows that the default rate in microfinance is less compared to conventional and regular loans. This is highly attributable to stringent standards of discipline observed by Microfinance Institutions and their borrowers.
Besides there are select methods that can be used to turn an otherwise unsecured loan to a secured loan through various guarantee programs.
Microfinance Business or Investment can indeed be lucrative and at the same time provide significant impact to poverty alleviation.
For more information about microfinance visit http://wisemicrofinance.blogspot.com/
