If you are starting a microfinance company, it is likely that you will require a business plan at some point. The experts at Pro Business Plans has extensive experience working with microfinance companies to prepare plans for investment and strategy. This article provides information on what to include in the plan and how it is typically structured.
Microfinance Business Plan
Microfinance Business Plan
There are several things to consider if you are starting a microfinance company that will influence the potential for success that investors and banks will use to review your company and analyze its potential. Among the most important are the nature of the positioning, such as the location that microloans will be provided and the structure in which they will be funded. For instance, some microfinance companies apply the peer-to-peer lending model, whereas others acquire their own lines of credit, or get funding from institutional investors. The specific structure of the microfinancing company and the unique structure of its operations
The business model of a microfinance business plan is designed to provide information about how your company is different than others in the market based on its unique positioning. There are several distinguishing aspects of each microfinancing business that would distinguish it relative to others in the market. For instance, some many focus on a specific area such as philanthropic lending and others may emphasize higher returns that target the predatory market. There are also many areas within the business model that are unique to your company, regardless of its positioning, such as the management team and available resources. The information below provides a breakdown to further illustrate these points.
There are several angles of the market that you may take depending upon the focus of your positioning. However, it may be challenging to find an untapped area of the microfinancing market and justify that it is a sustainable business model. For instance, you may be able to enter a specific country that has high interest rates or abnormally high requirements for financing. The World Bank provides a breakdown of interest rates by country such that you may have a greater understanding of where a spread may occur.
The management team is one of the core aspects of the plan because it requires that the team have a very high level of expertise, yet also be versatile and wholly focused on growing the company. A well-structured management team will consist of a leader responsible for bringing together the business model, ideally someone with a background in finance and lending, and a business development person capable of sourcing plenty of microfinance deals. The qualifications of the management are important because at an early stage, all that the company is worth can be determined by what the combined effort of the management team may be capable of accomplishing.
The marketing section of a microfinance business plan can focus on two approaches. The first approach is loan origination, by focusing on how microfinance loans will be sourced and from what locations they will be generated. The second approach is investment generation, as money may be generated from both private and institutional investors, and potentially unaccredited investors if the company is structured properly. Therefore, there are several aspects of the marketing strategy that the company may take in order to focus on value creation and bringing together people that require capital in exchange for people that are looking to make a higher and more stable return on their investment.
TWhen it comes to marketing for a microfinancing company, public relations are a strong way to establish a reliable brand identity in the market. Not only may the company establish a strong brand in the market, but it may also build a reputation that it may nurture as it scales in the market. Consumers are placing a decreasing amount of credibility on advertisements and increasing credibility on information acquired from the media. Fortunately, the media is easily bought and acquiring media coverage is very feasible through the proper channels.
The most effective method of quickly gaining traction in the market is through the formation of strategic partnerships. Working with construction firms, real estate agencies, and vendors to offer financing for their customers is one approach. Another approach is to form strategic partnerships with loan origination companies and similar firms. Strategic partnerships are the basis for any strong company to grow quickly and have the ability to triple its profitability over time, rather than sinking profits into sales & marketing.
The financial forecasts for a microfinance business plan should provide information around the forecasted revenue and budget of the company. The revenue projections are based on a large number of assumptions based upon an analysis of growth at similar companies to help investors better understand the potential profitability and identify risks that the company may face in the future. Therefore, it is important to outline conservative yet optimistic assumptions about the company’s future performance and how it will perform over the next three to five-year period.
The most effective method of planning the revenue forecasts is to form reasonable assumptions that will serve as drivers to the company’s growth. These projections are based on a variety of factors including macroeconomic drivers, the growth forecasts of your business, and those of comparable companies. The revenue forecasts should be conservative yet optimistic, as investors will recognize those that are overly aggressive and based on unfounded assumptions.
The most effective method to form a budget for a microfinance business is to base them on quotes from third parties including contractors, vendors, and service providers. If your company bases its budgeting on quotes, it is more likely to be accurate. However, it is also a good idea to overestimate the budget in order to avoid having liquidity issues. By having a conservative budget, you can advert a financial crisis and steer away from liquidity issues.