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. This serves 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 strata 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 concern. On top of their priority is a 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 investment opportunity comes.
While the microfinance sector individually owns little, but
considering 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 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 high 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 loans through various guarantee programs.
Microfinance Business or Investment can indeed be lucrative
and at the same time provide significant impact to poverty alleviation.
Like any other investment opportunity, the real risk is in
the lack of understanding.
MICROFINANCE HANDBOOK