Why a Business Plan for MFIs are important?
As more microfinance institutions strive for financial self-sufficiency, they recognise the importance of taking a business approach, being more responsive to their client’s needs, and constantly improving their management and operations. With this business approach comes the need for MFls to think about their products, markets, and operations, and to develop a plan to meet their future goals.
Many microfinance institutions underestimate the importance of planning and how a proper business plan may help an MFI get started, attract funds, plan for the future, and track its success. This initiative aimed to get microfinance institutions thinking about where they’ve been, where they want to go, and how they’re going to get there.
Microcredit, also known as microlending, is a method of financing in which small loans are issued by individuals rather than banks or other credit organisations. Entrepreneurs and company owners may utilise these loans to get their concept off the ground or to expand their firm with a little more cash. In that regard, microlending is similar to a small business loan.
Microfinance has always been important in poverty alleviation. It provides them a helping hand, empowering them to earn their way out of poverty. However, the importance of microfinance in COVID-19 recovery efforts cannot be overstated. The existing microfinance infrastructure and technology will be critical in keeping people linked to key services during the pandemic and its recovery.
The motivation behind the loan is what distinguishes microlending. Traditional lenders may charge interest or fees to make a profit on their loans. Microlenders are eager to invest in the growth of an idea or business. A microloan’s primary purpose is to assist a small entrepreneur who may not have access to traditional finance and would otherwise be unable to borrow money.
When in the correct location, a microlender may make a lot of money with tenacity and patience. According to some research, up to 97 percent of low-income borrowers repay their loans on time.
As the global market emerges from the pandemic-caused financial crisis, now is a good time to review your strategy or develop a new one that can adapt to changing circumstances. The following are the key aspects that must be included in your MFI business plan:
- Executive Summary
- Business Overview
- Target Customers
- Market Analysis
- Competitive Analysis
- Products and Services
- Marketing Strategy
- Management Team
- Financial Plan
The executive summary of your business plan will introduce the purpose of writing your business plan. It might be to get funds from authorities for start-up or it can be written to get support from organizations to expand your business. But it is probably the last section that you will have to create as it includes all the summarized sections of the business plan. This helps the reader to get very much idea of the purpose behind the business plan and all the necessary details that he/she might miss when reading the full business plan.
The content of your Executive Summary must be written in a way that should instantly engage the reader. Explain to them what kind of microfinance institution you are running or your current status. For example, Have you just started your business or do you want to expand?
Next, provide an overview of each of the subsequent sections of your plan for the Microfinance Business. For example, provide a quick summary of the MFI and lending sector. Discuss the sort of Lending Institution you run. Describe who is your direct competitors in the industry. Provide an outline of your target market. Explain how you are going to market your business in front of your target customers. Describe how you are going to generate income through this business. At the end of the Executive Summary, you must provide a summary of your financial strategy and projections for the next three or five years depending on the requirement of the reader
In this section, you will have to explain the kind of microfinance business you are operating.
When the business was started?
You will have to elaborate on the achievement you have during the business. The starting year and date of business must be mentioned here as well. Achievements may include sales targets met, customers attained, and the number of branches you are operating. Here sales targets means the amount of cash you just lend to your customers.
The next step is to provide the legal details of the Microfinance Business. Are you a limited liability company (LLC)? Is it a sole proprietorship business?
This section must include brief details about the targeted market. You must explain your targeted market including demographic and psychographic factors. With regards to demographics, including a discussion of the ages, genders, locations, and income levels of the customers you seek to serve.
On the other hand, psychographic profiles will describe your target customer’s interests and needs. The better you articulate and understand these demands, the better you will be able to attract and retain customers.
Customer research is always very important for Microfinance Institutions since the customers come from various types of businesses and individuals. Consider who you wish to serve and write in this section by justifying the reasons behind targeting them. Also, determine your customer’s demographics and how they make decisions keeping in mind their demands.
In this section, you are going to analyze your local market and the potential of Microfinance Institutions to fit into the market successfully. It would provide more value to the business plan if you provide hard data and statistics to show how the market has performed previously and how the market has been and where it is expected to grow. This detailed information helps the reader to understand the market so that he can take decisions more easily.
The location along with its value must be discussed in this section. If the real estate value in this area has decreased as a result of the pandemic or any other factor, you must show that you will still be able to make a profit from reduced rent for Microfinance Institution. If you are relocating your office to a location closer to the workplaces or communities of your target clients.
All these information are important for the applicant along with the average income of residents he hopes to serve, the percentage who owns their home, and the average number of people per household. This will help the reader to judge if the target market needs loans or not.
This section is very important since it needs a business owner to conduct research on their competitors. You should identify direct and indirect competitors of MFI’s including banks, as well as their strengths and shortcomings, and how your lending business will deal with them.
Product and Services
Include the breakdown of what percentage of interest rate you will charge from different nature of clients when providing them the required amount of loan. That should also include your plans in terms of the percentage of compound interest you will charge going forward after the second year of starting your business.
You should also include any special offer which you will provide to your customers depending on the nature of their business. It can be in the form of a different compound interest rate for those businesses. Also, use this section to provide details of any plans to change your policies in the future and including the projected cost for setting up your business.
This part covers everything you do to enhance your business including the initiatives which you are going to take in the future. This will help you to present yourself in front of your target market. Social media campaigns, membership drives, sponsorship of local events or charities, advertising, collaborations, and other marketing tactics are the few aspects that must be included in this section for the reader. This will help the reader to understand the aims and goals of your business.
It is also very important to include the projected costs for your marketing strategies to help your purpose. Also, consider including which employee will be responsible for each piece of the marketing strategy.
It is very essential to include the experience and skills of your team in the micro-lending businesses. This will send a message to the reader that the applicant is coming with a lot of experience which will increase the chances of getting funds or loans from a reader. However, you should also highlight any experience that you believe will assist your business to flourish. Include the expected expenditures for your marketing activities to assist your plan, and think about who is accountable for each component of the marketing strategy.
This is usually the last section of your business plan. You must include your most recent year’s financials, as well as your expected income for the next several years, in this section. Those predicted revenues should be based on thorough market research. Financial forecasts must contain an annual profit and loss statement, a balance sheet, and annual cash flow statements.
Once you have developed a detailed MFI business plan, you are ready to meet your business goals, whether you’re requesting funding or simply pushing ahead to greater success for your business.
What’s the business plan?
The Key Elements of the business plan
THE BUSINESS PLAN PROCESS ENTAILS 5 FUNDAMENTAL STEPS:
- Laying out your basic business concept.
- Gathering data on the feasibility and specifics of your concept.
- Focusing and refining the concept based on the data you compile.
- Outlining the specifics of your business.
- Putting your plan in a compelling form.
Why would you require a business plan?
Can Be Used to obtain financing
Among the chief purposes of a business plan is to get funding from prospective lenders and investors. You may have the most visionary company idea in mind, however, you’ll find it hard to describe it to an investor in phrases without the support of a suitable business plan.
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Helps you think about your company in a strategic way.
As you can see from its construction, the company program is a detailed document which offers a great deal of advice for readers. It informs them about exactly what, when, why, where, who, and how of your small business.
It provides an excellent indication of what your company is attempting to reach and what you want to accomplish your goal.
Advantages of Business Plan:
A business plan will help you evaluate the current market and get details about the competition, clients, suppliers, and other important stakeholders.
Planning can help you develop your company gradually rather than committing a lot of resources too fast.
Drawing a strategy provides you a more realistic estimate of the funds and financing you’ll have to prepare the enterprise.
Many lenders and investors will request to see a business plan before they will consider devoting any funds to your company.
Cons of Business Plan
Writing a business plan requires complex comprehension and expertise in business management, bookkeeping, and advertising. If you do not possess these abilities, then you might find it tough to write.
It’s likely for you to overestimate or underestimate any earnings or expenses and receive unrealistic expectations for the company.
It’s also possible that you underrate the possibility of the company and choose not to pursue the venture, though it’s a rewarding venture.