MICROFINANCE to help grow your business

By Francisco J. Colayco, Ph.D

Microfinance is now available to help you start or grow your business.

Microfinance helps in the growth of “small or micro enterprises” because it lends relatively small amounts to small businessmen. In truth, an important way to grow a business is to use leverage properly. Today, thanks to the support of the Bangko Sentral ng Pilipinas (BSP), your small business now has a source for borrowing to support your cash flow needs.

The key rules in using microfinance are:

You should clearly understand and accept that a loan is actually using other people's money. Therefore, it is important to pay back in accordance with the loan agreement.
Properly analyze your business' capability to pay back the loan principal and interest.
Carefully study and manage your business cash flow to ensure that your cash inflow can really cover your loan repayment schedule.
When you meet the terms of agreement on your loan by paying on time, you establish good credit standing. This allows you to be able to borrow more in the future should you need to grow your business further.

Microfinancing does not require collateral. Aside from your signature, you need the endorsement and guarantee of four of your friends. In this way, the loan is really not just yours alone but your guarantors as well. If you cannot pay, your guarantors will have to answer for your debt. Thus, your guarantors will be sure to support you and pressure you to ensure payment.

According to Monetary Board Resolution No. 40, microfinancing loans are small unsecured loans with no need for collateral. The amounts are normally Php2,000 to Php5,000 and could be more but not higher than Php 150,000. The loan can be paid daily, weekly, bi-monthly or monthly. The interest cannot be lower than market rate and should be fair.

Even without collateral, you can go to a financial institution with microfinancing facilities, if you need capital for your business. This is unlike the “five-six” lenders where the interest rate is exorbitantly high. Thus, Microfinancing can really help you if you are starting a business or if you need more capital. You just have to be able to repay the loan with your regular earnings.

The microfinance loan can be used as the start-up capital for different businesses. It can be used as equity for sari-sari stores, different “buy and sell” businesses, handicrafts or small manufacturing (rug-making, basket-making, etc.); services like tricycle operation, barber/parlor shop, repair shop; or food production/processing like meat processing, candy-making, bakery; and any business you can think of.