How To Start Micro Lending Business In South Africa
What is Micro Lending?
Microlending is the process of granting small loans known as “microloans” to small business owners that do not have access to financial products.
How To Start Micro Lending Business In South Africa
1. Business Structure: A microlending business can be set up as a single proprietorship, partnership, or corporation. However, if you wish to set up your microlending business as a single proprietorship or partnership, you can’t attach the word “lending” or “finance” in your business name.
2. Startup Capital: The minimum capital requirement is P1 million.
3. Business Requirements: Register your business with the Securities and Exchange Commission or SEC (www.sec.gov.ph), get a Mayor’s permit, certification from the Bureau of Internal Revenue (BIR), and Social Security System, Philhealth, and Pag-IBIG coverage for the people you will be employing in the business.
4. Employees: Start with three employees- one to take care of releasing loans, a second to collect payments, and a third either as bookkeeper or accountant on retainer.
5. Location: You may be able to cut overhead costs by establishing your microlending business right at your own home. You can also rent an office close to major business establishments or to an area where your target market are mostly located.
6. Target Market: without quasi-banking activities, you may cater to business employees, pensioners, sari-sari store-owners, flea market stall-owners, and OFWs.
7. Loanable amount and Interest Rates: Loans could start from P5,000 to P15,000, with 3 to 5 percent interest per month. OFWs usually require bigger loan amounts that start at P50,000. Aside from the interest, you should also charge another 5 percent as a service fee to borrowers to cover your overhead costs.
8. Payment Terms: It can be from two months to six months. The advisable payment schemes are daily or weekly; for employees and pensioners, though, payments can be scheduled every payday or once a month.
9. Collateral: Microlending usually doesn’t require collateral from the borrower. It only requires the borrower and the co-maker to sign a promissory note and submit other documents.
10. Penalties: A penalty charge should also be imposed on delinquent borrowers. You therefore need to allot a 1 percent provision for bad debts.
Frequently Asked Questions (FAQs).
Is micro lending profitable in South Africa?
According to the SA Eagle website the company operates in both the domestic and commercial markets, transacting all classes of short term insurance. There is no doubt that providing short-term and micro loans remains a lucrative service for those companies prepared to implement such businesses properly.
Is loan sharks legal in South Africa?
Is it legal to be a loan shark in South Africa ? Loan sharking is usually illegal, although predatory lending with extremely high interest rates such as payday or title loans is sometimes considered to be loan sharking, even when it is legal. Loan sharks sometimes enforce repayment by blackmail or threats of violence.
What is a micro loan in South Africa?
Micro or Short-Term Loans range from R1000 (One Thousand Rand) to R15 000 (Fifteen Thousand Rand) over a period from 1 (one) to 12 (twelve) months. These loans would generally attract a higher interest rate, due to the shorter period over which the loan is taken.
How many microfinance do we have in South Africa?
MFSA represents more than 1300 Microfinance Credit provider offices, providing short term and unsecured credit, registered with the National Credit Regulator, as well as a significant proportion of Service Providers in the Sector.
Can I lend and charge interest South Africa?
If you want to lend money and charge interest, you must be a registered credit provider.
Are loans taxable South Africa?
Interest (and other borrowing costs) incurred is generally deductible for income tax purposes, provided the interest is incurred in the production of income and in the course of a taxpayer’s trade.
Can you lend money without a license in South Africa?
The act provides that money lending cannot be done without a license, and the government may, from time to time, specify the maximum rate of interest chargeable by money lenders for any local area.
What sells the most in South Africa?
According to Bizcommunity, the three most popular online shopping categories for South African consumers were clothing/apparel (53%), entertainment/education (digital/downloadable) (51%), and event tickets (51%).
What products are high in demand in South Africa?
Some of the high demand products in this sector are canned vegetables and fruits, fruit juices, and processed animal products. Processed food products are among the most wanted products in South Africa and beyond.
What are the 5 major exports of South Africa?
Chief exports include corn, diamonds, fruits, gold, metals and minerals, sugar, and wool. Machinery and transportation equipment make up more than one-third of the value of the country’s imports.