Microfinance organization: how to open and where to start?
The microfinance market shows more than 30% growth per year, while the banking market – only 10%. Obvious prospects make this sector incredibly popular among experienced and not so investors.
We decided to ask Dmitry Erokhin, a successful MFI franchisee in Yaroslavl, about where to start and how to make a business profitable.
Dmitry, what does an MFI start with?
To start an MFI, you need to open an LLC and add it to the register of the Central Bank of the Russian Federation. Office space, repairs, hiring and employee training – all this is clear. Particular attention will have to be paid to the scoring system and the security service.
All risks, in fact, are embedded in a high interest rate, but you always want to minimize them. Keep in mind legal and accounting support. The field is specific, therefore it is better that employees already have experience working specifically with MFIs.
Pretty troublesome. How long did it take to start a business? How quickly did it pay off and start generating revenue?
This is a personal matter for everyone, of course, but I did not take risks and open MFIs from scratch, without the necessary experience and knowledge. Instead, I bought a microfinance franchise, and the franchisor took on the lion’s share of the responsibilities.
For example, I did not have to rack my brains over the search for software, the development of a scoring system or advertising strategy. This not only saved a lot of time, but also greatly reduced the risks. As a result, I completely opened the point in just a month.
After 7 months, it paid off, and on the 8th the first profit appeared. This is a good result. Most MFIs pay off no sooner than a year later.
The topic of risks is very useful. Non-refund of 30-40% is considered the norm for MFIs, but it is no secret that many have it much more. What is the size of your dirty portfolio and how do you hinder its growth?
The number of defaults, as well as the rate of return, directly depends on the debugged system. For an organization with a well-functioning system of work, the risks are practically not perceptible, so I made my choice in favor of a franchise. Now, after a year and 2 months of work, I managed to reduce the defaults to 13% and, to a greater extent, this is the merit of WMR money, my franchisor, the smooth running of his curatorial department, scoring specialists and security services. In addition, a dirty portfolio, in which case I can sell it, moreover, to my own franchisor.
What do you think is the reason for such popularity of MFI services in Russia?
MFIs really show particularly fast growth in our country, about 4% every quarter according to official statistics of the Central Bank of the Russian Federation. The forecasts of industry development specialists are also positive. The average client of an MFI is a person aged 26-45, with income below the average or low; in 60% of cases, he is a man who wants to improve his basic standard of living, that is, to purchase goods or to replenish funds for current expenses. Are there many such people in Russia? Draw conclusions.
But why don’t they go to the bank, because there the interest rate is much lower?
They could go to the bank, but do not want to wait for a long check and approval. They need a small amount here and now, but the bank cannot provide this. The main reason for applying to MFIs is the level of service, or rather, its speed. In my case, the possibility of obtaining a loan secured by real estate is also added to the speed of issuance.
Any microfinance franchise makes it possible to issue loans secured by real estate? Where does the investment come from?
Not all franchises provide the franchisee with such an opportunity. Investing gives WMR money, and I act as a broker: I get my interest for each borrower and transfer it to the franchisor.
Having your own business often means practically living in an office / store / restaurant, etc. How convenient is microfinance organization from this point of view?
At first, of course, I had to pay a lot of attention to business, but this, as you rightly noted, is inevitable for any sphere. Now it has become easier, in addition, software (RBS) is very helpful. Most processes are automated, and data collection is done through reports. It’s very convenient, you relax wherever you want, and the business works!