Weekly revocation of licenses of large and small banks has become commonplace. The Central Bank of Russia is seeking to purge the Russian financial system of weak players that threaten stability. However, it is easy to see that the number of small credit, so-called microfinance organizations is also growing rapidly. As you know, the functions of banks are quite wide: this includes traditional lending, payment acceptance, and settlement and cash services.
The most profitable direction for banks is lending.
Microfinance organizations, of all types of banking activities, are engaged in the most profitable, that is, lending. Small credit organizations set rather high interest rates for their borrowers and receive huge incomes even with small volumes of activity.
The desire to open a credit organization exists among many entrepreneurs who have a certain amount of capital and would like to increase it in a short time. However, opening a credit institution by private individuals or small companies is a rather complicated matter, requiring strict compliance with the law and accurate risk calculations.
When starting to create a microfinance organization, it should be understood that this is a special form of a legal entity that differs significantly from a banking organization or a non-banking credit organization. Establishing a bank or opening a non-bank credit organization has been extremely difficult lately. The point is not even in the huge authorized capital that is required to create a new credit institution, but in the unwillingness of the Central Bank to produce new small banks, which may subsequently become problematic.
Obtaining a Central Bank license for a new credit organization is very difficult.
Microfinance organizations in this regard are a simpler option. However, the possibilities of a microfinance organization are much less than those of a banking or non-banking credit institution. First of all, this concerns the amount of loans issued, on which a certain limit is imposed.
So, for example, a microfinance organization does not have the right to issue a loan in excess of one million dollars. The amount of funds raised from one individual also cannot be more than 1.5 thousand dollars.
That is, the opportunities for the development of their activities in microfinance credit organizations are quite limited. It should also be remembered that there are high risks in the work of a microfinance organization. After all, the most reliable borrowers with sufficiently high incomes and the ability to provide collateral to repay loans are usually attracted by banks, which can always check the financial reliability of the borrower.
A microfinance organization does not have such opportunities, so it provides loans almost blindly, which entails high risks of default.
Indeed, a very large percentage of clients of microfinance organizations do not repay loans on time. These losses of the microfinance institution are covered by higher interest rates when issuing loans, therefore, in their activities, such small lending institutions usually issue a large number of very small loans at very high interest rates.
To open a small credit institution engaged in microfinance, it is necessary to register an enterprise and obtain the status of an MFI (microfinance institution).
A license is not required, however, the MFI must obtain its own number in the Unified Register of the Central Bank.
To issue loans, a microfinance organization must have clear rules published for clients, be connected to the state financial monitoring system, and report to the Central Bank in its activities. It takes quite a long time to register and organize the work of a credit institution, and all this time you need to invest money without receiving income. Since MFIs issue small loans, earning a decent income is possible only if a wide network of lending points is created, which must be maintained, financed, equipped with office equipment, telephones and computers. And all these expenses will be covered by income only after some time.
It is not difficult to calculate that opening a single point of sale for services of a microfinance organization can cost about $100,000, and the ongoing monthly expenses will be at least $50,000, depending on the cost of the rent.
Accordingly, the opening of a dozen points for issuing loans increases these costs by 10 times. Not to mention the need to maintain the office of a microfinance organization, security services, programmers, accounting. Such a complex system requires appropriate software, as well as the services of collectors who work with unscrupulous borrowers.
Therefore, the opening of a credit organization is associated not only with large initial costs, but also requires large volumes of loans, approximately $ 1.5 million per month per one point of issue. In order to ensure a sufficient volume of loans, it is necessary to conduct a preliminary market research to study demand and competition, as well as develop a detailed and rigorous business plan for the creation and development of MFIs.
On our website you can order a business plan for a credit institution with all the necessary calculations.