START A MICROFINANCE?

How  START  a MICROFINANCE?

Start a Microfinance Business

Setting up a microfinance institution can be a highly satisfying experience, enabling you to improve the lives of the country’s underprivileged.

India is currently considered the largest emerging market for microfinance institutions (MFIs). Though it has not reached the level of Bangladeshi MFIs, we are still growing at a steady pace. Commonly described as a bank for the poor, microfinance institutions offer three basic services: savings, credit, and insurance. Setting up an MFI is not a Herculean task—provided your priorities are clear.

For profit or not for profit
Before setting up a microfinance institution, it is imperative to come to a decision about one basic premise: do you want your MFI to be a non-profit or a for-profit institution? Non-profit MFIs are set up as trusts or societies with the aid of grants and donations, registered under the Societies Registration Act, 1860, or the Indian Trust Acts, 1882. In fact, most such MFIs started out as NGOs. If you decide to set up a for-profit MFI, there are two models to choose from: a non-banking financial company (NBFC) or a co-operative.

Unlike an NBFC, a co-operative is entitled to take on savings accounts. On the other hand, a co-operative pres

For Tanzania please check Tanzania Law,,,,,,,,,for financial Acts,Registration Acts,by James 
Mwalubalile

presents a few disadvantages:


• A co-operative brings with it ownership. Your customers are also owners, putting you in danger of losing control of your organization.
• Politicians tend to take over co-operatives, leaving the door open for power 

.
• It is usually not considered to be much of a feasible option.

Get a license
If you are setting up a NBFC, the Reserve Bank of India (RBI) is the only authorized body that’s registered to grant you a license. For this, you will need to raise Rs. 2 crore in capital. The process usually takes about three to four months. You can also buy existing licenses of defunct companies from the RBI. This should cost you onwards of Rs. 25 lakh. Check www.rbi.org.in for more information. To obtain a license for a co-operative, contact the Registrar of Corporates.
For Tanzania  please look for Local Banks for  fund as Capital

Conduct a market survey
This is a very important stage and shouldn’t be taken lightly. Before narrowing down on a region of your choice, you should conduct a market research / survey of your intended target customer base there to get a feel of things. Make sure you do an in-depth study of the area to understand your customers (in this case, the poor), based on your own criteria. For instance, are you going to work with the rural or urban poor? The needs of customers differ in rural and urban areas. So, choose one and work on your offerings accordingly.

Get a foreign investor
You will need additional capital to run your business. This sector finds it easier to get foreign investors, so try and identify one such investor before you apply for a bank loan.

Run a pilot program
Once you have a fair idea of the city / town you will begin operations in, it is advisable to run a pilot program in a small way for about 1-1.5 years. This will help you gain first-hand knowledge about your customers and their needs, as well as figure out loopholes in the system and identify areas of opportunity for your MFI. Test your customer base to see if they understand you, your intentions of working with them, and vice versa. More importantly, the pilot program will help you get a bank loan, as banks want to see a good track record of your operations before they sanction a loan. Hence, this stage is crucial.

Personnel required for a MF center
To get your MFI up and running, you will need:
• 6-8 field staff or ‘lending officers’. They should come from the same class / community of your customer (at least a 10th-standard pass)
• 1 cashier with an accounting background
• 1 branch manager with adequate experience in sales and / or running a small outfit.

Your field staff will need to go out and interact with your target customers (usually women), hold projection meetings, and encourage them to work with you. Ask your customers to form Self-Help Groups (SHGs) for the sake
of operational efficiencies.

Get a bank loan
Capital! You can’t do without it if you want to start a full-scale business. For this, you will need a bank loan, preferably sought from a nationalized bank. MFIs fall under the ‘priority sector’ identified by the Government of India. Simply put, 40 percent of a bank’s assets have to be allocated here. Before sanctioning you a loan, any bank—whether public or private—will want to see a good track record of your business.

In addition, banks look at your management structure, business plan, and history of Directors. It’s advisable to source your funds from two or three banks in order to get a substantial capital. No bank will, in any case, give you 100 percent exposure. The maximum you can borrow from banks (in total) should not exceed six times the initial capital—this is considered a prudent limit. An inspector will inspect your operations on the field both before and after the loan is granted.

Some banks that offer loans to MFIs include SIDBI, ABN Amro, HDFC (only on the housing side) and Axis Bank.
Time taken: 1-2 months Minimum loan amount: Rs. 25-35 lakh Type: Term loan for 3-4 years

Documents required
• Financial statements (balance sheet, annual report, HR policy, etc.)
• Rating Report from any good agency (CRISIL, CARE, etc.)
• Details of your organization, its management, board of directors, operations and products
• RBI license
• Memorandum of Association

Recruit and invest in multi-ethnic employees
To run a successful MFI, it’s important for you to able to work with people from a variety of backgrounds and cultures. When recruiting employees, too, make sure they come from diverse backgrounds and fit in with the ethnic profile of your customer base. One of the biggest constraints of running a MFI is getting experienced people.

When you want to expand your operations to other cities, you should ideally do it in a phased and organized manner, or what is usually referred to as organic growth. Keep in mind the cultural undercurrents of the city / town you plan on entering before embarking upon an expansion exercise. Also, invest in a good software package that will let you maintain a database of customers and their banking accounts—and train your staff well to operate the same.
©Entrepreneur January 2014