Starting Your Own Microcredit or Microfinance Franchise

microfinance, microcredit

TOC

  1. My dream for microfinance
  2. The microfinance podcast
  3. The problem of microfinance
  4. A solution to the microfinance problem: franchising
  5. Resources: Microfinance franchise


My dream for microfinance

From the day I heard about a strange little thing called micro-finance (or micro-credit) I’ve had a dream to create an organization which would participate. It usually takes me a few years to make a dream this big turn into a reality. There’s the day-dreaming, the peripheral research, the active research, the “holy crap, this could actually work” phase, the planning, and then the doing. It’s a long process, but I’ve done it before, and I will do it again, over and over and over again.

The problem (there’s always a problem, isn’t there?) is I don’t know squat about the intricacies or processes of a lending organization. I’ve never worked at a bank. I’ve never been an accountant or bookkeeper, and honestly, I hate doing my own finances.

But, what I do love is the amazingly massive amount of good will and huge PEVZ created by microfinance. As an entrepreneur, I’m always looking for new ways to create wealth; not just for myself, and certainly not only the economic kind. The holy grail of my passions have to do with combining life enhancement (via psychological, identity, or just “life” coaching), economic viability, entrepreneurship, and teaching. For me, that is what microfinance is all about.

Have you ever watched the faces of students who understand geometry for the first time?

Have you ever given money anonymously to you someone who’s been financially troubled? Then, they see you one day and they talk about some anonymous donor who changed their lives for the better.

Have you ever given a soccer ball to a kid who’s never seen one before?

In every circumstance, you’ve changed their world. You’ve created “wealth”. It didn’t exist before, but you just created it out of thin air. It’s amazing to watch their worlds change for the better, and being a part of life-changing endeavors has always been my goal.

The microfinance podcast

What sparked my interest in microfinance lately was listening to a podcast (attached to this article) series put on by the Stanford Technology Ventures Program. It’s a podcast stream titled Entrepreneurial Thought Leaders and this particular one was “The Microfinance of Entrepreneurship, with Geoff Davis (Unitus)”.

Here it is: (Update: Unfortunately this podcast was lost in the transition to a new blog theme. It may be available by searching Google or Stanford Technology Ventures Program site.)

The problem of microfinance

The problem Mr. Davis mentions in this podcast is the trouble with the microcredit organizations in their attempts to reach those who need microfinance. The statistic he gave was that microcredit organizations, both non-profit and for-profit, are only reaching 20% of the people who need it.

Let’s just stop there. If you don’t already know this, microfinance is a 30 year old industry. This is not a new industry, folks. And in 30 years the industry as a whole only has a worldwide 20% market penetration. Amazing.

It sounds like an industry failure to me. I mean, when you’re not reaching 80% of the people who would gladly take you up on your services, regardless of whether it’s for or non-profit, you’ve got some issues to solve.

A solution to the microfinance problem: franchising

Now, these problems aren’t insurmountable. One of the reasons why there’s only been 20% market penetration in microlending is that up until recently it has been attempted by non-profits only. The biggest reason why this is an issue is that non-profits generally rely on either government grants or big financial backers who essentially have disposable income they are willing to donate instead of invest or purchase stuff with. Unfortunately, that severely limits how much money can get into these organizations which, in turn, limits their possible expansion and growth rates.

Blech, that was a lot of college-word terminology all to say they don’t have the clink to grow fast enough.

So, what’s the solution? Microfinance franchises could most certainly be one.

It solves two issues:

  • Decentralization of “retail” outlets. Each new “retail” outlet is its own business and therefore has little reliance on centralized overhead and structure.
  • Turning into a for-profit enterprise means you get access to the big money through capital markets like the stock market, etc.

So, the biggest response that immediately comes up is “But you’re taking a socially-good idea and now making money off of it? Isn’t that seriously wrong somehow?”

I answer a hearty “Absolutely not!”

Making money is the primary goal of for-profit organizations, for sure. But, I’ll take a set of for-profit companies changing the world over non-profit companies missing the opportunity any day of the week. The risks of inactivity completely outweigh the potential risks of gouging. Gouging and predatory lending already happens (at a 3000% monthly interest rate!). The competition by other microfinance companies, as well as government oversight on lending companies and banks, will keep the interest rates low enough to still be helpful.

And that’s the point — changing the world for good.

If that can be done through for-profit franchising of microfinance, I’m all in.

Now for the good stuff: Resources

As you might know by now, I’m apparently a knowledge broker (also known as an infomediary). That just means I like putting information together for people (and futzing).

So, below you’ll see the podcast (again) which you should listen to along with a PDF I found along the way which describe some of the issues related to starting a microlending organization in the wake of regional conflicts. Then, when you’re completely convinced that you want to start a microfinance company too, join Intellecash as a franchise and you’re on your way to becoming a microlender, changing the world in extremely significant ways.

I guarantee within a few years I will be running my own microfinance company, and it could very well be by starting a microcredit franchise through Intellecash.

(Update: Unfortunately this podcast was lost in the transition to a new blog theme. It may be available by searching Google or Stanford Technology Ventures Program site.)

Financing of Income Generation Activities in the Wake of Conflict (pdf)


Nate Ritter is the leader of Perfect Space, a San Diego based web development firm where he is more opinionated about helping companies get ROI than this other stuff. He makes stuff work, and cares about process and quality. More here →

28 Comments on "Starting Your Own Microcredit or Microfinance Franchise"

  1. Rick says:

    Nate,

    Great to see your background and brainstorming. I haven’t forgotten about you, I’ll hit you up as soon as I get back from the stix tonight.

  2. Justin says:

    Nate,

    I like the idea of giving money and not “letting your left hand know what your right hand is doing.” In other words, keeping it such a secret that only God knows.

    One of my professors in college was involved in an organization that provided microfinancing to people in third-world countries. Amazingly, $5,000 could get someone up and running with their own portable store that they could take to markets. Within a few years, loans were paid off, with no further support from an outside organization. Pretty cool, huh?

    Best regards!

    Justin

  3. nate says:

    Justin,

    Your professor is doing exactly what I want to do – enable people to financially support themselves and live a better life. They’re only missing one tool and a very small one in our context.

    Cheers guys!

  4. Mark says:

    i have been in the UK for 4 years now, and now coming to the end of my studies(Msc International Business). i am a Zambian, i am looking at setting up a microfinance when i go back later this year. i know, the little i have saved will go a very long way in helping community. anybody willing to give me ideas on the best strategies to go for, is more than wellcome. Thanks

  5. Starting A Franchise says:

    Great article. You’ve provided a lot of wonderful information. I like the problem/solution format.

  6. Kato George says:

    Hullo.
    I have been in the microfinance industry first as credit officer then credit supervisor,Manager and currentely head of credit for 7years.
    With this massive experience am determined to start one in my own country.

  7. ASHOK ARAKERI says:

    I have started a microfinance org in my village moratagi tq:sindagi dist: bijapur karnataka state India..at an interest rate of 12% per year..
    by this i am earning little but feeling great…i always want to throw a helping hand who needs…i am investing small amount in it..but it helping lot of poor people to improve their financial status…

  8. dan says:

    Hi
    Since i heard of MFI i cant stop thinking of it, to be able to help people and make a living at the same time.
    Saddly, lack of info and know how, are big impediments.
    If I would overcome that i would star right away.
    best regards

  9. Domenic Mancuso says:

    Hi Nate – how can I contact you by phone or email?

  10. Dave G. Roman says:

    Im due to retire soon and I am currently looking for an investment for my retirement money. My dream is to be able to help people and at the same time provide a sustainable income for my family after I retire. I dont know anything about Micro financing but I am driven to it and very interested to know more about it. I would appreciate if anyone can enlighthen me about it and provide me necessary information about micro financing. Hope to hear from anyone soon ! Cheers, DAVE

    • nate says:

      Hi Dave,

      You might check out MicroPlace. That’s where we invest, get a return, and have helped quite a few people begin their journey out of poverty by way of entrepreneurship. I highly recommend it.

  11. Mags Mwangi says:

    I wish to help people who have no access to any form of support. This is a great as you work with communities and see them get out of poverty. Where and how can one start. Any help is appreciated so that I can make a difference in Kenya.

  12. daniel essien says:

    i really wanna start a micro finance company but shot of ideas and format.

  13. Florence Armah says:

    Hi Nate! I’m glad to come across this helpful info. Setting up a micro fin. Org. is my passion & dream. However, my problem is the capital to start, since i don’t have any. I need your help, what should i do?

    • Nate Ritter says:

      Florence, thanks for commenting. I get a bunch of people contacting me asking for assistance to build a microfinance organization. The thing is I’m not an expert in building them from scratch. I might suggest that you could actually talk to your local MFI (microfinance institution) about financing what you want to build. It may sound funny to get financed to be a financier, but that’s probably the most sensible suggestion I can give.

      One caution: If you aren’t good with finance, I’d suggest taking some classes before even considering building one of these organizations. You may have good intentions, but without the experience, finance companies are the fastest to drown themselves.

  14. I am a Branch Manager and currently looking into the possibility to set up a micro finance business in Mauritius. The bank rates are actually quite high and it makes business sense to cater for the poor to uplift their standard of living and also to cater for those who do not have the necessary income; people working in unregistered businesses to take short term loans. My help would be to provide me with the basic principles behind setting a micro business for people earning less than Rs 100,000 approximately USD 3,500 equivalent on an annual basis. How is the feasibility study look like? what is the break even point? The population will soon be in fifteen to twenty years mainly retirees is a major concern.

    Thanking you for some valuable advises.

    • Nate Ritter says:

      Hi there.

      I’ve gotten a ton of requests since writing this post for help in setting up a micro-finance or micro-lending company. I honestly don’t know the details of how to do this, which is why I thought the franchise model written about above was so intriguing.

      Thanks for all your comments and questions. I wish I had more information to offer. What I will do is see if I can get my friends who run micro-finance companies to try to contribute some information both here and on San Diego MicroFinance.

      Thanks.

  15. Nevil says:

    Wow, this was a very useful article, I am considering starting up a microlending business in Uganda. I will graduate with a Bachelor Of Microfinance here in Uganda

    • Dee says:

      Hey, just came across this. Did u ever start the Microfinance in Uganda? How is it going? Was thinking about the same hopefully the market is not flooded by now.

    • Nathan says:

      Nevil,

      How is your microfinance business going? I’m going to be in Uganda in June and would love to see what you’ve got going on!

  16. Prashant Ghuge says:

    I have been in the microfinance industry first as Risk Manager.
    With this massive experience am determined to start one in my own country.

    • Abdullah says:

      That is good idea, go ahead you can do it. Microfinance and micro credit is big association in over all world, I am also working with a International microfinance company. i have directly started my job as Branch Manager and for last 3 years i am working in this company. before that i were working with the banks i have 5 years banking experience for the different banks, but when i have been jobless i have applied for the post of Branch Manager with a Microfinance and hopefully i have been selected for the post, in point of my view and experience in microfinance i will say that microfinace is really interesting,risky, and nice business. It needs for hard working.

      Thank you,

  17. Nathan says:

    Nate,

    You wrote this article over 4 years ago…how are things going now? I’m really looking to get into microfinance (B.S. finance, experience with Big 4 acounting firm) and am looking for any opportunities to get started!

    • admin says:

      Nathan, things are good. Thanks for asking. I haven\’t yet opened up a franchise as I\’ve been running my own business here in the states for the past few years. Some day, though. :)

      Good luck with your own experience. Definitely look into Grameen as an option. Also IRC is smaller, but they do great things domestically too.

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