MFOs: how to make money on them

2.10.2022
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инвестиции в мфо

Micro-credit organizations are not only an opportunity to intercept the right amount when money is urgently needed, but also an option to earn money on interest. MFIs usually finance loans to individuals for a short period of time. There are also microfinance organizations that finance small businesses and microfirms.

MFIs offer their clients various options for investment programs with a high percentage of return. Investments in MFIs can be irrevocable, in this case the interest rate will be 21-23%, and you can also invest money with the possibility of their early repayment, then the rate will be 16-18% per annum.

Investments in microloans are similar to bank deposits, but investments in MFIs are not protected by the state deposit insurance system. Therefore, it is necessary to choose a company where you plan to invest your own money carefully and thoughtfully. You should not invest your last funds, investing in MFIs will be much safer if you have an additional airbag.

How to choose an MFI investment?

invest in MFIs

If you decide to earn interest on deposits in micro-credit organizations, choose the company carefully. First, you need to check whether this MFI is listed in the state register of microfinance institutions and whether it is actually an MFI. Quite often, scammers use this well-known abbreviation.

Be sure to study all available information about the company, specify the year it has been operating in the market, and who its founder is. What return on investment it offers, etc.

If an MFI has existed for more than three years, this is a good indicator, and the presence of reliable founders and shareholders will also be a plus to the company’s reputation. If an organization offers you a return of 20% or more, this should be alarming. In this case, the company may be using too risky investment conditions.

It also doesn’t hurt to study reviews about this organization.You can find them on the Internet or among friends. In the process of choosing a company, specify the sources of its financing. It is better to cooperate with an MFI that has a large equity capital, reserve funds, significant bank investments, as well as investments from organizations and legal entities.

The best option is to invest in equal shares in different microfinance institutions.

Benefits of investing in IFC

invest in microloans

Among the main advantages in favor of investing in a micro-credit structure are::

  • high yield;
  • in case of early termination of the contract, the interest is usually not fully burned out.

At the moment, you can invest in microloans with a yield of up to 15% per annum. Different organizations offer different options for paying interest. You can get profit once a quarter, once a month, or specify an arbitrary period for receiving interest on the deposit in the contract.

Most MFIs do not prevent their clients from early termination of the contract. And even in case of premature termination of the contract, interest will be accrued, although the income will be lower. However, in this case, it is necessary to inform the company in advance about your plans. Usually, the contract prescribes the appropriate time frame, where it can be five days, and somewhere 30.

Contribution to MFIs. What nuances to pay attention to

investing in ifc

If you have decided to invest in an MFI, you should understand that in this case the risks will be higher than for bank deposits.

First, you need to choose a suitable investment program. Almost every microfinance institution has different investment products, which may differ in terms of terms, percentage of return, and other indicators.

When you are just starting to invest money in MFIs, choose a short-term product. The short-term investment program will be lower in terms of profitability, however, and the risks of losses will be small. Before making a final decision, try to calculate the return on each investment program offered by the company.

Before entering into a transaction, it is recommended to carefully study the contract from the microfinance institution, as well as from the insurance company, make all the necessary inquiries and read reviews. If you have any questions or doubts during the process of studying documents, it is better to double-check and clarify all the points of interest.

If you are satisfied with the terms of cooperation with an MFI, you can sign a contract and deposit money.

Investing in microfinance organizations. Possible risks

contribution to MFIs

Investing your money in micro-credit structures inevitably involves certain risks. Among the main ones are::

  • lack of state insurance.In the best case, an MFI can cooperate with a small insurance company, but, as a rule, this company is a subsidiary of a microfinance organization and works under its supervision;
  • possible bankruptcy of an MFI.Such organizations often issue loans to fraudsters, and because of the large number of non-repayments, companies often go bankrupt.Accordingly, investors will not be able to get their money back;
  • fraudulent schemes.There are now a huge number of pseudo MFIs on the microcredit market that copy the design of well-known companies, but in fact turn out to be real scammers.

However, despite the presence of risks, many investors prefer to invest their funds in MFIs, rather than in a banking structure. Investing your own money in microfinance institutions will be many times more profitable, interest can be received monthly, and they can also be capitalized in order to increase income. Even early termination of the contract does not threaten to reduce the interest rate in most cases, while on bank deposits the interest rate will decrease as much as possible.

It should also be understood that investments in MFIs are taxed at 13%, in contrast to bank deposits of up to 15% per annum, which are not taxed.

If an MFI goes bankrupt, investors can lose all their money. The court recognizes their right to receive full compensation, but the credit institution will not be able to return the money, as it will be officially bankrupt. After the property belonging to the microfinance structure is sold, the funds received will be distributed among investors and employees of the MFI in the order of priority established.

If your contribution to the microfinance structure was insured, then the insurance company will pay out the missing funds after the sale of the property. But in this case, you will have to collect a lot of documents to receive compensation.

It is up to the investor to decide which microfinance organization to choose. Most MFIs offer their clients calculators that clearly show how much profit you will receive from your investments according to the entered criteria. The final income is usually affected by the term and size of the deposit.

Terms and interest rates in microfinance institutions change regularly, so you need to look at the latest data immediately before entering into a contract.

Experienced investors recommend beginners to spend no more than 20% of the total investment capital on high-yield, respectively, and high-risk projects.

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