April 13, 2008

Micro Financing

Posted in extra income at 10:45 am by kimsan23

Yesterday, I went on a Tagaytay trip with some very good friends.  One of them introduced the idea of micro-financing, basically giving small loans to people.  I don’t quite know how this can be done without getting myself into trouble.  When I was younger, I got in cahoots with my maid to lend money to the people in her neighborhood.  Little did I know that I was on my way to becoming some kind of invisible loan shark.  She would borrow from me at a profit of 10% returns in 4 weeks — that wasn’t too bad at all.  The moral dilemma I faced was after finding out that she was doing a 5-6!  She was splitting the interest between us!  Ten and ten!  I was so guilty that after I found out, I no longer loaned money to anyone.

Anyway, I have decided, after talking to my friends that I could probably do that again.  Only this time at reasonable rates of about 5-7% depending on the amount.  I still need to determine the time frames for this and of course, I need to find people who will need the financial assistance.  I’ll talk to some lawyer buddies about the legality of giving small loans to people.

With this avenue, I can afford to invest an initial of about 10k in loans given.  If it works out, I can increase the investment a bit more.  I need to be careful though, there are serious risks in losing money here.  If a person decides to run away from paying me, I’m toast.

I’m gonna weigh the pros and cons of this exercise, maybe experiment with 2-3k to see how it works.  I know it’s not a lot of money but it may be worth a try.

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4 Comments »

  1. Tahn said,

    this is actually quite a good thing because there are many people who have a hard time securing loans because of the many requirements they need to present which they don’t even have in the first place.

  2. kimsan23 said,

    Hi Tahn! Thank you for visiting my site. Good point you got there. I can imagine how it would have been for me about 10 years ago. If needed a loan 10 years ago, I would have gone to a micro-financer since I did not really qualify as a professional back then.

  3. cramnhoj said,

    Since yo mentioned you’re gonna talk about it with lawyers, is this some sort of business you have register or something or just simply lending to people? The big question of course is how do you ensure the people won’t just disappear after getting your money? Will you be requiring collateral from them or something?

    Something similar to this is that I remember some pawnshops before offering something similar to a time deposit. The reason they’re asking for your money is so they have funds when their clients need money. That client would return the money with interest if they want to reclaim whatever collateral they gave, that in turn earns the pawnshop interest to pay you back. As with the principle higher risk equals higher return, their interest rates are higher than a bank TD, but it’s easier for a pawnshop to go broke than a bank, and the pawnshop loan of course ain’t PDIC insured.

  4. kimsan23 said,

    This is a very risky business and you need to be very cautious in dealing with people. I did consult a lawyer and found out that I do not need to register this as a business. There has to be papers though for it which means formalized IOU forms between me and the person who needs to borrow money.

    And yes, people may disappear on me as it has happened to me before. That is the biggest risk I need to take.


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