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How to tap micro-loans for your startup

Do not let lack of funds hinder you. There is a way to start your business on just P5,000
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Growing big is a dream held by most people starting a small business. But often, a lack of capital stalls the dream even before it takes off.

That shouldn’t be a problem for microentrepreneurs anymore, what with the presence of  210 microfinance institutions (MFIs) nationwide. All of them are ready to lend a small sum to start a business or expand it.

But how will you know if you are qualified for a microfinance loan? According to the Bangko Sentral ng Pilipinas (BSP), the main objective of microfinance is to spur entrepreneurship in the poor sector “ so that these entrepreneurial poor, such as shopkeepers, ambulant vendors and home-based entrepreneurs, could easily avail of financial services to make their micro-enterprise more stable.” [See a five-step guide to zero marketing cost here]

“These entrepreneurial poor are people who are not yet bankable, or simply lack credit history, collateral and proper documents to avail of commercial loans from banks,” the central bank adds.

Micro-loans and MFIs

By definition, a microfinance loan is a “ladder-type” loan where a borrower could start from the minimum loan amount until he or she reaches a particular “cycle” or level where the borrower could avail of a bigger loan.

Because a microfinance loan or micro-loan is unsecured and character-based, some MFIs like Village Microfinance, the microfinance arm of Producers Rural Banking Corp., prefer borrowers with existing businesses. [See five startup to success strategies here]

But some, like Mentors Philippine Microenterprise Development Foundation (MPMDF), cater to those who want to start their own business.

Micro-loans usually start at around P5,000 or less, depending on the MFI. They are usually rural banks, thrift banks, cooperative banks, foundations or non-government organizations that are into microfinance. These MFIs usually have branches or offices in the area where they offer micro-loans. [See four ways to raise funds for your business here]

Getting a micro-loan

A.Village Microfinance


1. Lender needs to be a member of a group, or what MFIs call a “center group”.


This center group must be comprised of 20 to 30 members, further subdivided into smaller groups living in the same area.

Pier Mercado, the executive director of Village Microfinance, says the microfinance pays courtesy call to barangay officials whenever they set foot on a new area. This helps potential borrowers seek them out by asking their barangay officials which MFIs work in their area. [See 10 ways to get business capital from the bank here]

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