What are the Risks and Rewards of Micro-lending
In order to believe in the practice of micro-lending, you will more than likely believe in the saying “you get back what you put out”. As a micro-lender, you give money to smaller businesses in order to grow and expand these businesses for a small premium in return. Micro-lending is a form of financing that provides small amounts of money to upcoming entrepreneurs to encourage self-sufficiency and to end poverty – particularly in developing countries. Over time, your borrowers are able to pay back the loans with the ultimate goal being to raise their income status and grow their number of employees. Today, micro-lending has become a global phenomenon with many profit and not-for-profit companies offering microfinancing options to businesses worldwide.
Micro-lending for Beginners
As you embark on the micro-lending path, you will come to understand the ins and outs of micro-lending. As a start, it’s important to comprehend how your money will be loaned out and to whom. You’ll want to also find out when you can expect to be paid back and what happens if the borrower can’t or won’t pay back the loan. You should never look at the cup half empty, but sometimes you need to prepare yourself. You need to be prepared that sometimes a payer may not pay you your money back.
The golden rule of micro-lending is to always be realistic. Truth be told, not all borrowers are honest. Be sure to spot the wolf in sheep’s clothing as there are a few wolves that pretend to need money for reason X but really require money for reason Y. That is why you should only give amounts of money that you can afford to lose so that you don’t ultimately break the bank. Micro-lenders should always lend a sympathetic ear when it comes to entrepreneurs wanting to go from rags to riches. Therefore, joining worthy business owners with socially responsible lenders definitely makes good business sense. However, make sure your generosity is not being taken advantage of – make sure your loans are like a boomerang. You need to make sure that what you lend out ultimately comes back to you.
Take some Risks only if there are Greater Rewards
It pays to take some risks in your life if and only if the rewards outweigh the risks. Let’s start with the rewards. Micro-lenders have a passion and commitment to help people realise their dreams more than traditional banks do. A micro-lender does not just focus on their bottom line. On an individual level, micro-lending often sees parents not pulling their children out of school, due to the fact that they can afford their school fees. This is a result of their thriving business. A business that thrived because of a micro-loan. When you look at economies, micro finance can lead to improved access to clean water and better sanitation while also providing better access to health care. At the same token, micro financing can help create new employment opportunities, which has a beneficial impact on local economies. Another great thing about micro-lending is that micro-lenders can guide borrowers through the initial stages and offer advice to increase their likelihood of success. Overall, the gift of giving is a micro-lender’s greatest reward.
On the flip side, there are definite risks of micro-lending. Entrepreneurs may default on their loans for a number of reasons, ranging from personal or business problems, to political or environmental reasons. Most micro finance borrowers are unable to provide collateral for their loans. When your micro finance company does experience increased volumes of default, a negative domino effect can take place.
- It starts with fraud – as with all businesses involving large amounts of money, fraud is a constant risk
- It then travels to portfolio risks – if a large number of borrowers default, for example as a result of a recession, micro-lenders may find themselves unable to pay their debt obligations
- All roads lead to bankruptcy – this could be caused by poor operational control, poor risk management, or external issues such as changes to the political or environmental context, or fluctuations in the financial markets.
How to Micromanage Your Risks
Delter IT, through our extensive knowledge in the micro-lending industry have developed loan management systems. These systems enable micro-lenders to stay on top of their loans and make their micro-lending business easy to handle. We have developed four software packages that make the management and growth of your micro-lending business simple and hassle free. Delter IT has developed Delfin and Webfin to assist micro-lenders micromanage their loans.
Delter systems are:
- Efficient: The software will ensure that you are remaining hands-on without having to physically have eyes and ears in every room. It allows you to manage your tasks, such as daily and monthly reports. It also enables you to manage your clients by their loan. The best part is that you don’t need to be an IT expert to work it as it is extremely user-friendly.
- Effective: It is a micro-lending management software system that actually comes with built-in security. It comes with biometric fingerprint scanning, identification via photo, credit protection insurance and much more.
- Innovative: It is integrated with Nupay, Allps, Realpay and Trans Union. This means that you can use all of your payment systems and credit checking all through one software.
- Active: The software consistently makes sure that your micro-loans stay controlled. You can keep things in order right from the onset. Clients can conveniently apply for a loan online with your business. You can then accept or decline the loan based on your business model.
Let Delter IT help you minimise your risks and maximise your rewards. Delter IT will ensure that you lend a helping hand without the risks that come with it.