Profitability of Microfinance Operations version 08/21/12
There’s money in lending to microfinance loan borrowers… if you do it right version 08/21/12
Assumptions for individual lending • • Bank starts with one full-time Microfinance Unit Supervisor; 3 AOs to be hired • Each AO generates an average of 10 new accounts per month • One AO manages a maximum of 150 accounts • Average loan amount disbursed of Ph. P 10, 000 • Loan term of 90 days for 1 st cycle, 120 days for 2 nd cycle, 150 days for 3 rd cycle and 180 days for 4 th cycle • Interest rate of 2. 5% per month, and a 3% service fee. • version 08/21/12 Lending activity starts in the fourth month Contractual savings are 10% of the loan amortization and initial deposit of P 100
Major Investments • 1 Microfinance Unit Supervisor and 3 AOs • 1 computer, printer and MIS software upgrade with total amount of P 120, 000 • Office furniture • Motorcycles (provided to AOs one year after hire) • Training and technical assistance fee (service providers): Ph. P 180, 000 over 4 to 6 months • Monthly salaries and benefits: Ph. P 38, 750 version 08/21/12
Other Assumptions • Loan portfolio is funded by savings, collections and borrowings (from Head Office and/or external sources) with cost of borrowed funds of 12% p. a. • • Transportation cost is Ph. P 1000 per field staff per month • Cost of stationery is Ph. P 20 for every loan disbursed • Other office supplies are Ph. P 1, 000 per month • Communication expense is Ph. P 1, 000 per month • Miscellaneous expenses are Ph. P 1, 000 per month • version 08/21/12 Collection rate is 97% and Loan-loss provision is 3% of loan portfolio Gross receipts tax is 5% of income
Results • Positive income by month 10 (or 7 months after start of lending) • Break-even by month 20 • By the 24 th month, generating about Ph. P 199, 000 monthly net income • Cumulative net income of Ph. P 465, 000 in 24 th month. • Outstanding portfolio of loans will be Ph. P 3. 9 million with 752 borrowers ( 4 AOs) • Microdeposit level will be Ph. P 2. 4 million version 08/21/12
Conclusion • Microfinance can be a profitable activity • Success will depend on commitments : - At least 4 full-time staff (1 MFS and 3 AOs) - Top management attention especially during the product development and testing stage - Close supervision - Observance of culture of zero tolerance - Management Information System (MIS) able to track accounts and aging of Portfolio at Risk (PAR) version 08/21/12
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