How to Start a Microfinance Bank in a Developing Economy

Although the micro market is believed to consists of poor people, the one who invests in it cannot be referred to as poor. As a matter of fact, one of the easiest way to multiply your millions is to invest in microfinance bank. This does not mean however that you have to ripoff your customers. Investing in microfinance bank will put smile on you and your customers lips. Are you willing to get to know what it takes to be a microfinance banker?

Register Your Business Name
Irrespective of the country you are willing to start your business, this step is a necessity. You are registering a name, not as an enterprise, but as a limited liability company. It goes to show that even if it is a microfinance bank, it is a financial institution that requires a level of seriousness. In Nigeria, you register with the CAC, Corporate Affairs Commission. In Ghana, it is the Registrar General office, the South Africans expect you to register with Companies and Intellectual Property Commission (CIPC). In India, you are expected to fulfill the requirements set out by the Ministry of Corporate Affairs. In any country you want to invest in, you have to register your business name.

Register with the Central Bank
Central Bank is the regulatory body supervising all of financial activities in any given country. Regardless of the name given to it, each country's central bank has a set of rules guiding the opening and operations of microfinance banks. An example of principles and guidelines is the one issued by the Central Bank of Nigeria. This body expects you to pay application fee, approval fee and deposit a certain capital amount with the CBN. In a typical Sub-Saharan African country, such registration, approval and capital base will cost about $130,000 for a unit of microfinance bank. Please note that most African and Asian central banks do not charge up to this.

Get an Office Space
Depending on the country you are willing to establish a microfinance bank, it is important you get an office space in the city. While some of your customers are rural dwellers, situating your office in a metropolis will help you in getting enough customers. Remember microfinance banks is not the same as NGO, so endeavor to situate your office where you will make profit.
The office does not have to be as big as that of a commercial bank. A three-room office will suffice for starters. One of the rooms will serve as your banking hall. So endeavor to furnish it in the pattern of other banks you have visited. You do not have to use marbles, wooden or aluminum partitioning is okay, you are a microfinance bank. Another room must contain the vault. The vault does not have to be as strong as the strong rooms you have in some commercial banks, but ensure your documents, money and that of your customers are in a safe deposit that will be difficult to break.
Getting two or three computer systems should be okay for a unit of microfinance bank. With time and patronage, you will be left with no choice but to buy more. Depending on the type of bank, there are banking and accounting software that need to be installed on these computers. Seek the opinion of an expert who will install and train you on the usage. You will take turn to train your staff on how to use the software.

Print Security Documents
Even in this computer age, you need to print your withdrawal and deposit slip, you also need other ledgers for the smooth running and record keeping of your organization. That your bank is a microfinance bank does not mean you are immune to fraud. If commercial banks can be defrauded, microfinance banks are more susceptible. It is therefore your priority to print documents with secured features. Consult printing companies that have these features and ensure that they do not take turn to sabotage you. At this juncture, there is nothing wrong if you patronize printers that other commercial banks recommend.

Recruit Staff
You have the option of outsourcing the recruitment process to an agency, or you be the one to carry out the recruitment and interview process directly. The former option is always advisable as you will be free of the rigor of scrutiny and background checking. At any rate, do your home work to ensure that you get honest hands to handle your business.
Even though some microfinance banks overlook them, marketers are the lifeblood of your business. So ensure you get the best of sales people to work with you. Set target that is commensurate with what is obtainable locally and compensate them accordingly when they meet up with their targets. After all, you will always increase the target.
Other staff that you need to recruit are the Human Resource person. He or she can combine the work of admin with HR. A financial manager is a role you can play on your own or give out to another person. It is a necessity for you to get securities who will take turn to guard the place day and night. Most microfinance banks outsource the recruitment and overseeing of security to security companies.
In all, you do not need more than ten employees at the beginning. All of them must undergo  induction training before they commence with work. You will save your self a lot of headache if you pay an experienced microfinance banker to put your staff through the operations of each department in your bank.

Advertise Below the line
While the marketers have the responsibility of publicizing your organization, it is an added advantage if you advertise your bank 'below the line'. This means that you do not have to pay money to the mass media and their agent to advertise your bank. Using branded materials, like calendars, umbrellas pen and other gift items will go a long way to tell your potential customers about you. There will be need to use handbills and posters too. Of course you need a catchy signpost in front of your office.

Make Customers Smile
As much as you can go, endeavor to give your customers terms that they consider favorable. When others give 5% interest rate per month, can you go as low as 4%? If your competitors are charging their customers hideously, it may be to your advantage if you point it out to the customers and guarantee them that you will operate on a transparent basis. While giving out loan, ensure that you have a relationship with the customer, ensure that they meet up with the requirements of the central bank before you give out a loan.
For a number of reasons, some microfinance banks do not last long. Please read the article 5 Reasons Micro finance Banks Fail. However if you put in your best to satisfy the immediate needs of your customers, if you endeavor to fulfill your obligation towards your staff, and stick to the guidelines of the central bank, you will never run at a loss when you invest in microfinance banks.

Budget
Cost of registering your business name        $700
Cost of registration with central bank         $13,000
Cost of Getting an office for a year        $6,000
Cost of furnishing you office            $6,000
Salary payment for one month            $6,000
Branding and printing                $3,000
Miscellaneous                    $4,000
Total                        $38,700

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