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Your microfinance business is no different than your home – too much debt can cripple your business. Although it might be ideal to run a debt-free business, that’s virtually impossible. The best you can do is to manage and reduce it as much as possible. However, there are tactics that you can employ to decrease your microfinance business debt.

Know your numbers

Don’t just be familiar with your numbers, you need to know them inside and out. Knowing them means that you know the cost of each micro loan and everything else. Do you know what each micro loan item costs down to the penny? Do you know the interest rate on each of your micro loans? If you don’t, you could be losing track of your business finances.

Be smart about your micro loans

If certain types of micro loans that you offer are not getting you to the margins that you need, it may be time to revisit those loans. Sales that result in ultra-low margins are costing you money, hence you need to identify unprofitable sales in your micro loan processes.

Increase your margins

Each microfinance company has levels of margins that are considered strong margins. You should be checking yours so that you can see if you need to make adjustments. You can raise your prices, lower your costs, or both. The goal should be to raise margins without raising your overhead expenses.

Check your interest rates

If your micro loans are not bringing in the ROI you would like, or you are not bringing in enough micro loans into your business, it could be because of your interest rates. Do some research and check to see if your interest rates are at the level they need to be. If you do find that your interest rates are too high or low, you can look at adjusting it to an amount that will benefit both you and your borrowers.

Cut back on your costs

Do you have a costly office lease or unnecessary office equipment? Sometimes it makes sense to sell those items or get a cheaper lease. At the end of the day, you can look at making your micro loans digital and mobile, which will eliminate the need for certain unnecessary office equipment or large expensive office spaces.

Ask your employees

You were an employee at some point. You know that the people on the front lines will see things that the managers may not. Your employees know where money is being wasted. Ask them. They may be wary about telling you for fear of retaliation but explain to them why you’re asking and maybe offer an incentive to anybody who helps the microfinance firm save money.

Be tougher on your borrowers

Don’t become that business owner that every borrower hates but do insist that they meet their payment terms. You probably won’t go to battle if payment is a few days late but when a couple of weeks go by, it’s time to start calling the borrower to ask for payment. If late paying customers are a big problem, you may want to add a late fee clause to micro loan agreements you have borrowers sign. At the end of the day, good business relationships happen when both parties feel respected and valued.

Bring on an investor

If things are really bad, an investor can offer an injection of cash often in exchange for a piece of your microfinance company. In general, avoiding this option is best since it involves signing away a portion of your future profits but if times are tough, it’s worth considering. They may be able to identify areas in the company that is costing money rather than making it and they can even inject fresh and innovative ideas into the company.

Focus on the bottom line

Change what you can control. You have far more control over your expenses than your profits. Ultimately, you can’t make borrowers come through your doors, but you can reduce costs, which will essentially have an impact on your bottom line. Therefore, concentrate on cost reduction and put that money back into servicing your debt.

Look at your micro loan management

Your microfinance business could be experiencing high levels of debt simply because you are using the wrong micro loan management system. If you are managing your micro loan processes by going through stacks of paperwork and files, it is time to simplify things by using micro loan software.

At Delter IT, we can help you effortlessly and seamlessly manage your micro lending business so that you have better visibility and control over your business and its debt.

  • Our software will make the management of your micro lending business easy to handle and grow with its effective functionality
  • Our software caters to any micro lending setup, from running your business centrally over the Internet or just managing your business locally in your office
  • We integrate with the best service providers to ensure that your business can run smoothly and profitably, which can ultimately help reduce your levels of debt