You don’t have to be a millionaire to start an international company. Micro lending is a strong emerging industry. Micro lending serves to be a great advantage to developing countries with citizens who are in dire need of financial assistance. This method could stimulate the economies of these countries – and your own bank account.
Micro lending is also known as micro finance or micro credit. This generally refers to the process of extending small loans to less fortunate people, usually in other countries. These loans are primarily intended to assist people in starting their own businesses or expanding an existing one. This practice began in Bangladesh in the 1970s. Now it is mostly done in countries outside of the US, but the prospect is expanding. Micro Lending allows poor, unemployed, or otherwise incapable people to engage in self-employment and business projects. This industry serves to be a secret goldmine for those wishing to generate extra income while also helping to stimulate the economy and assist the poor. It is one of the few ways to help others while helping yourself. These people are also able to generate their own income and to be independent, possibly improving their financial situation. Most of these people also have families and overdue bills to take care of. When they are able to pay their own bills and establish a disposable income, the economy reaches a growth spurt. Their standard of living also improves dramatically. A recent study of this industry revealed that there are about ten thousand Micro Lending companies in the United States. The study also reveals that the poverty of the customers does not determine profitability. The key is to develop loan portfolios which are designed to keep default rates at a minimum or, hopefully, nonexistent levels. The report foresees consolidation of these micro lending institutions as well as down-scaling of large lending institutions. One of the most prominent Micro Lenders is Muhammad Yunus. Yunus has received the Nobel Peace Prize for his successful and altruistic enterprise, the Grameen Bank. Investing only $27 to many women in Bangladesh, Yunus has helped to save women from high-interest rates. These women have been able to use these micro loans to jump-start their businesses and help support their families. The Grameen Bank has a 98 per cent repayment rate. The bank is now worth over 2.5 billion dollars. Yunus is a prime example of the opportunities available by giving small loans to poor people and allowing them to help themselves.
- Unemployed people
- Poor people
- People who don’t have credit or collateral
- People wishing or struggling to start a businesses
- Families and people needing income
Even though there are millions of people below the poverty line in the United States, it is difficult to sell micro lending to US customers for various reasons:
1. There is easy access to loans even if you’re poor.
2. Loans interest rate caps are higher in the United States.
3. Costs of marketing and service are higher. However, if you offer micro lending overseas, you can gain through double or triple interest.
Of course, the interest you should offer must always be lower than the interest people overseas would get from local loan sharks. Otherwise, they would opt for these local lenders. Being competitive by offering lower interest rates will allow them to come to you for these loans. The interest rates vary with each country. These rates vary from 20% to 90% depending on the country from which the borrower resides in. This is a great way to earn money and help people. A Micro Lender can offer seemingly small funds such as $100, $200, and even $25 to people in great need of these services. Then when the people begin to build their businesses and generate income, they pay back your loan amount plus your competitive interest rate.
1. Decide the amount of money you will be able to loan at a time ($25, $100, etc.)
2. Establish a no-tolerance policy for late/missed repayments<
3. Establish areas you will be lending to
4. Establish a competitive interest rate
5. After a previously set date, make sure loans and interest are paid back (2 weeks, 30 days, etc.)
6. Collect money and make profit!
Before you give out loans, make sure to interview the clients and make sure they will be capable to pay the money back to you in a reasonable amount of time. Setting up a weekly or bi-weekly payment schedule works for both sides and is easier than getting one larger sum back to you. You may also consider adding to the repayment amount any fees you may have during the sending and processing of the money, such as postage and handling, especially to foreign areas.
It is a good idea to set up an organized system for tracking who and when you give loans to, as well as how much the loan was and how much the interest rate will be. That way, you will know when loans are due at what times and when it is time to start requesting your money if a client is late. You can do this easily from a simple Word Document, Excel, or any other software depending on your computer skills. Good Luck! Micro Lending is a great way to make revenue on the side of your existing job or business, and it serves a great cause to less fortunate people. Simply, it’s a “win-win” situation, with an added benefit of good karma on your side. With loans being small increments, and careful consideration to the people you loan money to, there is little to no risk of loss, and most people receiving these loans are grateful for your services and will always repay the loans back. If you concentrate your services to a small area, your profits are surely going to skyrocket.
The word economy describes a monetary system that encompasses a group of people, resources, land, production and consumption of goods. If you’re discussing the world economy, you’re talking in terms of macro economy. If you’re talking about your household budget, you’re talking in terms of micro economy. The economy of the United States is a macro economy. The economy of a country like Zimbabwe might be better characterized as a micro economy. The economy of a village in Zimbabwe might not even rise to the level of a micro economy. No economy is perhaps a better characterization. A macro economy improves when the individuals comprising its economy can participate in the greater economy around them. Therefore, the world economy is better off if Zimbabwe and the multitude of third world and emerging countries similarly situated can participate. But how can they participate when they cannot provide themselves with clean drinking water and nutritious food to eat? The short answer is they can’t – that is until they were introduced to the brilliant idea that is micro lending.
In short, micro lending is just like traditional lending that we’re familiar with such as getting a loan to buy a car, a house or a new television set. It’s just that micro lending is significantly smaller loans to people who otherwise could not receive a traditional loan. The type of loan these poor individuals are seeking is to start small businesses to provide for their families. There are no payday loan huts in Zimbabwe – no easy credit car loans on every corner. With such a dismal economy, the rest of the world is lucky they haven’t all decided to get on boats and flee to the shores of greener pastures. Here’s where micro lending has the potential to make a huge difference in the microeconomies of third world countries. The Peace Corps just came through an area and taught some villagers how to grow a vegetable. The Peace Corps left and now the villagers have run out of seeds, fertilizer and they need these supplies to continue commerce surrounding the sale of their produce. The villagers can appeal to a microfinance company locally. They meet and discuss the terms of the loan, their past performance and how much they need to make their venture successful. The micro lending company evaluates the proposal and seeks investments from individuals that see the value in this type of loan and are willing to accept some risk. The venture might not succeed but if it does, it not only benefits the microeconomy of the villagers but the economy of their country and the macro economy of the world. Micro lending is truly a unique situation which by benefiting poorer individuals, everyone becomes richer. Micro lending is worthy of your further investigation. It provides an opportunity to give back and increase your personal good fortune.
Micro lending and microfinance are two terms that are often used interchangeably. Micro lending is making a small loan through a microfinance company to a poor individual from an emerging or third world country. Microfinance companies establish a local contact in various emerging and third world countries, such as Armenia, Azerbaijan, Bolivia, Cambodia, Ecuador, Honduras, Indonesia, Mozambique, and other countries. Individuals with business ideas that they cannot afford to start on their own, apply to the microfinance company for a microloan. If the microfinance company thinks the idea is good, they put it out into their network of investors and seek investments. In the traditional world of finance, a loan of $500 would be unthinkable. There’s not enough money involved to cover the processing of such a small loan. But in the world of microfinance, a loan of $500 could be just enough to get a new business started in Bolivia that improves the local economy and the life of a family that will work that business. Micro lending relies upon investors that are willing to make such a small loan. The investor has the opportunity for the possibility of a good result with minimal risk. For most investors, a loss of $500 is not something they would like, but it’s not going to force them into bankruptcy either. The Microfinance Company obtains a guarantee from the entrepreneur, maintains contact, collects the payments and forwards the returns to the investor. In reality, the world of microfinance and micro lending offer a win-win situation for all involved. Microfinance offers smaller investors or larger investors looking to diversify, a tremendous opportunity to give back to the world. Micro lending also offers a real opportunity for entrepreneurs that otherwise could not afford to start a business, a new lease on life. Once they’ve repaid their microloan, they are creating new economies in places desperate for any economy whatsoever. Micro lending is truly a good thing and will become even more popular as the word gets out about all of the fantastic benefits that micro lending and microfinance are providing to all involved.
One thing to consider if you live in the United States and are thinking of starting your own microfinance company serving other countries is the difference in currency between countries. As the aforementioned states, you will pick and choose your budget and how much you care to lend but, this may make a difference as to what countries you lend to. The American dollar may be double the other countries dollar or may be less. Anything will help many of these people seeking your services but you want to ensure the exact amount your dollars are worth. Here are a few examples of why:
Interest rates may increase or decrease pending the total amount loaned in various countries. Your $100.00 investment could mean they are receiving $1000.00. This means that you could collect more interest on the total loan amount. This would increase your chances of making money,
This may affect the amount of time you give each person to pay back the total loan amount. It may be impossible to give a two week time frame for loan repayment on $1000.00 loans.
Your criteria may need to change as a whole. If you are funding someone in hopes of starting a business, the business plans and profit margins may affect whether or not you should loan the money. It may be best to stick to loans under $1000.00 until credit is established with you in regards to repayment.
Establish a website for communication and easy payment handling. WordPress is likely to be the best platform for this. Set it up with a shopping cart and easy to use system for repayment. This may allow for quicker payments from your customers. Snail mail is not an option when dealing with foreign companies. A WordPress site is easy to set up and very user friendly and interactive with the right plug-in and widgets. It would be a great idea to send out an informational sheet on how to repay and what forms of payment are allowed on your website. This will help to keep things running as smooth as possible. Be sure that any customers your have, understand how to utilize your WordPress site to ensure prompt and accurate payments. Check into what the countries local loan companies are doing in regards to repayment plans and how to pay, etc.
It is always great to lend a helping hand to others and be able to rake a few bucks in but, it is also to protect yourself with each investment. Small investments are strongly encouraged when starting your own new micro lending company. It is also wise to understand what any over seas companies may be using as a strategy. These companies are local in these countries and have a better understanding of their people. This is also a large part of researching to stay competitive with the overseas companies. It may increase your chances of becoming a larger player in this international lending tree.