Micro Finance

[yellow knifeTop contributor]

We have seen exponential growth in Micro Finance Companies recently.

Micro Finance companies are not regulated much and there is no particular Act to govern the activities. All the other activities of Banking and Finance is heavily regulated.

There are many scholars researching into Micro Fiance and I had my doubts about this sector.

Up to now all my writings were based on secondary data like extracts from annual reports ( which are often seen in Industrial analysis) and other printed articles ( book summary, country reports etc) .

What I write now is purely based on Primary Data and since this cover only one case it may be unfair to generalize what I state in this thread. However it will open another aspect worth when we analyze shares of Micro Finance related companies.

[yellow knifeTop contributor]

I have become a voluntary adviser for many people who find it difficult to pay back loans. I once really saved a person who was about to suicide due to his excessive loans. It was difficult subject. Yet detail analysis of ones' finance situation and assisting him to stand on his own expand my understanding of fiance world.


What I next going to discuss is a problem that I am trying to work out a plan. Yet sharing these information in this thread will enable us to see micro-fiance from a different angle.

We often find it easy to read an annual report and other related news articles and then rush to decisions like buying, holding or selling shares.

This is how we looked at Bimputh Lanka PLC.

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[yellow knifeTop contributor]

    


I met a person who is now in financial trap which he has voluntarily jumped in and now seeking assistance to get out of the trap. Trap is something you can easily get in bu harly get out.

He is employed as a casual labourer in a petrol shed. His monthly salary is Rs 20,000 and he is paid Rs 1,000 on daily basis. He works 26 days per month and so we can expect a monthly income of Rs 46,000.00

His wife has started a Koththu Shop in front of his house. So he has taken a loan of Rs 200,000 for that purpose . Loan is a syndicated type loan. So in last August he has taken Rs 200,000 in following manner

1. Rs 100,000 from Canrich
2. Rs  50,000 from Brac
3. Rs  30,000 from Bimputh

and the balance Rs 20,000 from a friend.

He has recruited a Worker for Koththu business paying Rs 2,000 on daily business.

This is how good businessmen start business.. While he is earning Rs 46,000 per month he is paying Rs 60,000 to his worker...

[yellow knifeTop contributor]

This is how he has taken loans.

From Canrich

So loans have to settle on weekly basis and on every Monday he has to pay Rs 2600.00

100,000.00

25.00

50

2,500.00

62,500.00

62,500.00

10,000.00

24%

So on every Tuesday he has to pay Rs 3,050 for Prime Grameen

Loan Amount	Interest	Weeks	Rental	Already paid	To be paid	Monthly Rental	Interest Per annum
120,000.00	20.80	50	3,050.00	23,150.00	117,650.00	12,200.00	16.64

Another loan from Bimputh and on every Tuesday you have to add another Rs 800.00 for loan repayments

Loan Amount	Interest	Weeks	Rental	Already paid	To be paid	Monthly Rental	Interest Per annum
30,000.00	7.80	48	800.00	19,200.00	18,600.00	3,200.00	26.00

Now on every Wednesday he has to pay Rs 1,800 for Commercial Credit

Loan Amount	Interest	Weeks	Rental	Already paid	To be paid	Monthly Rental	Interest Per annum
70,000.00	26.20	50	1,800.00	20,800.00	75,400.00	7,200.00	35.93

On the same Wednesday he has to pay Rs 1,250 for Brac Lanka

Loan Amount	Interest	Weeks	Rental	Already paid	To be paid	Monthly Rental	Interest Per annum
50,000.00	8.70	48	1,250.00	3,250.00	27,500.00	5,000.00	17.50

[yellow knifeTop contributor]

This is how he has taken loans.

From Canrich

So loans have to settle on weekly basis and on every Monday he has to pay Rs 2600.00

     

Loan Amount	Interest	Weeks	Rental	Already paid	To be paid	Monthly Rental	Interest Per annum
100,000.00	25.00	50	2,500.00	62,500.00	62,500.00	10,000.00	24%

So on every Tuesday he has to pay Rs 3,050 for Prime Grameen

     

Column1	Prime Grameen on Tuesday	Column2	Column3	Column4	Column5	Column6	Column7
Loan Amount	Interest	Weeks	Rental	Already paid	To be paid	Monthly Rental	Interest Per annum
120,000.00	20.80	50	3,050.00	23,150.00	117,650.00	12,200.00	16.64

[yellow knifeTop contributor]

seems I have messed the excel charts... Admin its better to delete the thread....

[CubedSol]

Still would like to hear read more about this

seems I have messed the excel charts... Admin its better to delete the thread....

[yellow knifeTop contributor]

I am not happy with my tables yet let me summarize with one chart

Total Loan amount	Already Paid	To be paid	Aggregated Monthly rental
510,000.00	201,463.00	383,587	48,825.00

[Hybrid]

I am not happy with my tables yet let me summarize with one chart

Total Loan amount	Already Paid	To be paid	Aggregated Monthly rental
510,000.00	201,463.00	383,587	48,825.00

Don't worry YK, keep going.

I also had these problems when I first put my hands on a PC I saw for the first time in 1984! Ashton-Taste was the software and even to print anything the user had to write a small program giving all the format instructions!

What a thrill it was back then!
Now this MS guys are making life too easy for us.

[yellow knifeTop contributor]

So you can see  a man whose monthly income is Rs 46,000 is given loans to pay Rs 48,000 monthly.

The beauty is mircor finance companies data is not sorted at CRIB and Micro loans are evaluated without CRIB reports.

That means one Micro Finance company will not know how much loan already taken by the client.

In our above example Bimputh PLC has given a weekly rental at Rs 800.00 . Its a risk free amount for an person earn Rs 46,000

[Hybrid]

Thanks YK for enlightening us of this. Does SANASA practice this scheme or where?

[yellow knifeTop contributor]

Thanx for encouragement... Hybrid and Cubedsol

************************************

Now let me re-evaluate..

A person who works at a Petrol Shed take loans of Rs 200,000 in August 2015.

This is how he did it.

Loan Amount	Interest	Weeks	Rental	Already paid	To be paid	Monthly Rental	Interest Per annum
100,000.00	25.00	50	2,500.00	62,500.00	62,500.00	10,000.00	24%

[yellow knifeTop contributor]

In September 2015 he has to pay rentals worth Rs 4650  per week and that is

Rs 2600 for Kanrich
Rs  800 for Bimputh and
Rs 1250 for Brac Lanka...

He settles the rentals bravely by taking another Micro Fiance loan from  Commercial Credit..

Loan Amount	Interest	Weeks	Rental	Already paid	To be paid	Monthly Rental	Interest Per annum
70,000.00	26.20	50	1,800.00	20,800.00	75,400.00	7,200.00	35.93

[yellow knifeTop contributor]

Now from next month onwards his weekly payment increases to Rs 5,900 and that is almost above his permanent salary of Rs 20,000.

So he settles Rs 23,600 per month and since its hard next month he gets another loan..

This time its Prime Grameen

Loan Amount	Interest	Weeks	Rental	Already paid	To be paid	Monthly Rental	Interest Per annum
120,000.00	20.80	50	3,050.00	23,150.00	117,650.00	12,200.00	16.64

[yellow knifeTop contributor]

So he get the assistance from Deshodaya Development Finance..

Loan Amount	Montly Rental	Already Paid	To be paid	Interest Per annum
50,000.00	5,125.00	51,250	10,250.00	23.00

[yellow knifeTop contributor]

Now he has experience and more advanced and move into more monthly rentals than weekly rentals.

None of the finance companies knew that they are paying each other...

So he continue the job...

Now he gets loans from Banks where the rate is very low.. this time its RDB... Pradeshiya Sanwardana Bank..

Loan Amount	Montly Rental	Already Paid	To be paid	Interest Per annum
40,000.00	2,600.00	13,000	30,000.00	8.00

[yellow knifeTop contributor]

What surprises me is now he is a very good pay master and this time he is given an interest free loan... I just depend on his data.. I have seen some Palm Top Machine receipts for his payments...

This time interest free loan from Grameeya Bank

Loan Amount	Montly Rental	Already Paid	To be paid	Interest Per annum
50,000.00	3,500.00	8,313	41,687.00	0.00

[yellow knifeTop contributor]

So in December he is in deep trouble. So he gets a loan from Informal Money Lender.. This time its Rs 200,000 and at 15% per month. So he take it settle rentals and enjoy season and have to pay Rs 30,000 monthly.

So by January his monthly payment is Rs 78,825.

Now he omit to pay January month for the Money Lender and this is February.

So he is in deep trouble.

[yellow knifeTop contributor]

Informal Money Lender has threatened to him through Licensed Chandi and the Head of that unit has threatened him to be put into jail after finding drugs in his possession... So this time our loan hero is facing the tough game...

No bail outs any more...

Unlike Micro Finance , informal money lenders capital is not settled until the full amount is made . Till then he has to pay Rs 30,000 per month without ending. Even though you pay for ten years until you meet the capital amount Rs 200,000 entirely it remains unsettled...

[yellow knifeTop contributor]

This is why when you read super performance of Micro Finance Companies in financial statements you have to go beyond that..

[yellow knifeTop contributor]

At the same time this kind of informal money lending is not limited to Sri Lanka... There is a nice movie Brick Lane, it shows how informal money lending take place among Muslims in London...it is the same terrible story..

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[HUNTERTop contributor]

I like the story. Keep going YK.

But, he must be getting some income from the shop right?

(BTW: Can we also get that interest free loan?
You also think what I think?

Get the loan and deposit in a bank)

[yellow knifeTop contributor]

Last one I am not sure... Yet that is what he forwarded me.. Now I am trying to put him on track... or I may leave him alone...Even I like to take a free interest loan..

Grameeya Bank seems to be worthy place to get loans...

[BackstageTop contributor]

Good thread YK. We can also visit about what made Yunoos so successful in Bangladesh.

What about this guys living expenses ? Family must be eating Koththu big time.

[HUNTERTop contributor]

This is why when you read super performance of Micro Finance Companies in financial statements you have to go beyond that..

Good Point!

In my case, never analyse any company beyond the financial reports. However, trying to use 'cash flow' to verify the quality of performance.

on't worry YK, keep going.

I also had these problems when I first put my hands on a PC I saw for the first time in 1984! Ashton-Taste was the software and even to print anything the user had to write a small program giving all the format instructions!

What a thrill it was back then!
Now this MS guys are making life too easy for us.

Interesting!

It suggests, you must be as experienced as Bill Gates;
And probably be as old as also.