The micro-loan business is one of the most profitable business models out there, so many entrepreneurs in Kenya dream of having their own. Consider also the issues we face on a daily basis that require funding as a solution.
Can the importance of finance be over emphasized? However, what would make you thrive is understanding the basic procedures involved. So let us discuss how to start a micro-loan business in Kenya.
Table of contents
- What is a micro-loan business
- What does a micro-loan business do?
- How to start a micro-loan business
- 5 advantages of micro loan business
What is a micro-loan business
Micro loan business is a lending platform created by entrepreneurs to loan small amounts of money to people. They made these loans for people who are unable to access the loan through an established government institution or banks.
Micro loan businesses lend private money to individuals, small businesses, investors or small investment companies to use.
What does a micro-loan business do?
A micro-loan business typically lends money to the public with an expectation of a return in the form of interest. They do not request for collateral before lending. However, you pay back the loan with an interest and other associated fees. This reduces financial risks in case the borrower defaults.
How to start a micro-loan business
Micro loan businesses are quickly gaining ground in Kenya. This emancipated from the increasing demand for a small capital.
Here is a list of how to start a micro-loan business
- Have a mapped out plan
- State the cost involved in opening a micro-loan business
- Apply, process and get the licenses
- Form a legal entity and register for tax
- Set up a business accounting and record keeping system
- Start the micro-loan business
1. Have a mapped out plan
You need to develop an elaborate plan to succeed in whatever you want to do. Your business’s specifics are mapped, and the unknowns discovered.
There are few overhead costs associated with micro-lending businesses. As a startup, you will need to hire a loan processor, bookkeeper, and debt collector. It is okay to take on these responsibilities by yourself at first, as long as you are careful.
2. State the cost involved in opening a micro-loan business
Micro-lenders have relatively low overhead, though you may need to hire a loan processor, a collector, and a bookkeeper. If you plan to take on these roles alone at the beginning, extra caution will be needed.
3. Apply, process and get the licences
Licences are essential if you wish to start any business. Financial institutions and money lenders that fail to obtain a state permit and license could incur heavy fines or even have their companies closed.
4. Form a legal entity and register for taxes
You do not become personally liable if your micro-lending company is sued, if it is established as a legal entity. To protect your privacy, you may opt on a registered agent service.
Regardless of the type of business, registration for taxes is mandatory. Before you can start a micro-lending business, you need to register for a variety of taxes.
5. Set up a business accounting and book-keeping system
A micro-lending firm that is well positioned must understand the performance of its business and financial status. The system of keeping track of your income and expenses must be well-defined.
The preparation of your annual tax returns is substantially simplified with a simple and accurate bookkeeping system.
6. Start the micro-loan business
In a new business, this is typically the last step before developing the entire business. Once you have gotten all the necessary licences and permits, launch your business and watch it grow.
5 advantages of micro loan business
- Lenders benefit from the interest paid by the borrowers
- Loans are approved and disbursed quietly
- No rigorous processes
- Has a flexible credit requirements
- Has flexible loan terms.
- Higher interest rates
- Not regulated properly by the government. Often lenders conducts their activities in a tricky way.
Having read this article, you now know how to start your own micro-loan business in Kenya. The above steps and strategies are all you need. We believe that when implemented properly, you must thrive.
It will also help you run a successful venture. So what are you waiting for? The step-by-step implementation of this “HOW TO START “ a micro-loan business is straightforward.