Upon reading the title of this article, what automatically came to your mind?
A 5-6 business? For those who don’t know it yet, 5-6 refers to the art and science of lending money to someone for 30 days — plus or minus 5 days — at 20% interest. If you do the Math, that means in a span of 5 months you double your money.
Wanna try? Oh, no… not so fast. Perhaps I should warn you first that it is a very risky proposition that you better leave it up to your friendly neighborhood Bombays, who are the true masters at that business.
And oh, by the way, contrary to popular belief, 5-6 won’t get you cancer. But not getting your money back, probably would. Hmm… Don’t tell me I didn’t warn you.
How about Lotto? We’ve already shown you that it is one of the ways you can get rich here in this country. On top of that, through the PCSO, you are also helping your fellow countrymen who are in dire need of money.
Time deposit, perhaps? It offers a lousy return, but at least your money is a little safer at the bank.
If you are thinking along those lines, I guess you already know that money can be used to make money.
3 Ways You Can Make Money From Money
There are many ways to go about this, but for this article, we’ll focus on three money businesses that you can set up on your own or with your business partners. They are the following:
- Money Remittance
- Micro-finance institution (MFI)
“The quickest way to double your money is to fold it in half and put it in your back pocket.” –Will Rogers
The Pawnshop Business is as old as mankind itself. And in the Philippines they are all over the place – from the remote parts of the provinces to the most crowded corners in the cities. For many Filipinos, a pawnshop is one place they can rely on as a source of quick money normally used for emergencies or immediate needs. That is, given the right collateral (something of value) the pawnbroker (the company or the individual running the pawnshop business) lends them money for a set period of time and for a given interest. The beauty of this process is that it is very fast, with no complicated document requirements like you would encounter when applying for a loan from a bank.
On the business side, there are three ways a pawnshop makes money:
- From service charges.
- From interest charges.
- From the sale of unredeemed items that served as collateral for the loaned money.
But remember that the real business of pawnshops is from the two items aforementioned. As Jean Henri Lhuillier (from the Cebuana Lhuillier Pawnshop Companies) said in one of this his interviews with the Inquirer, “Our business is out there as a bridge financing service. We are not into the business of buying. We are in the business of lending.”
Money Remittance BusinessIn the Global Money Transfer scene, the Philippines is the third largest country that sends money back home from abroad. The first two spots are taken by India and Mexico. Data from the Bangko Sentral Ng Pilipinas (BSP) shows that the average amount sent by an overseas Filipino to his family in the Philippines is 300 USD per month. Last year alone, the total money sent to the Philippines from abroad reached 20 Billion USD.
That’s a lot of money. And some say, they help keep the Philippine economy afloat and made the Peso Currency strong against the US Dollar. No wonder, the Overseas Filipino Workers are considered as heroes of the nation.
The Money Remittance Market in the Philippines used to be dominated by commercial banks. But thanks to the improving telecommunications technology, smaller players are now competing with the banks offering lower service charges and reaching wider areas of coverage.
If you wish to run a money transfer business, keep in mind the following:
- You are required to register with the Bangko Sentral Ng Pilipinas (BSP), for local money transfers.
- If you have an operation in another country, requirements differ from one country to another. Usually you will be required to place a cash bond and present your operating manual.
- It is important that you are aware of our local Anti-Money Laundering Law or similar laws if you have branches abroad.
- Equipping your premises with security systems, CCTV and alarms would be of help.
- Important to setup a continuity plan in case the computerized system goes offline.
A money remittance business has two ways of earning money:
- Service charge when someone sends money.
- Foreign exchange when a foreign currency is converted to the local currency when money is claimed.
The concept of microfinance is nothing new. But it became really popular with the success of Grameen Bank in Bangladesh.
For an overview of Microfinance, take a look at this inspiring short video presenting Dr Muhammad Yunus, known as the banker to the poor.
You may also want to buy Dr Yunus’ book, “Banker To The Poor: Micro-Lending and the Battle Against World Poverty”, from Amazon by clicking on the image below.
In the Philippines, no less than Bangko Sentral Ng Pilipinas has “declared microfinance as its flagship program for poverty alleviation.” The BSP defined microfinance this way:
Microfinance is the provision of a broad range of financial services such as deposits, loans, payment services, money transfers and insurance products to the poor and low-income households and their microenterprises. By definition, it is important to note that Microfinance is NOT subsidized credit, NOT a dole-out, NOT salary or consumption loans, and a cure-all for poverty.
The entrepreneurial poor
We all know them. They are the hardworking mom-and-pop (and perhaps kids, too) vendors in the local market. They are the sari-sari store owners serving the community in your subdivision. They are the small-time farmers raising poultry and other animals in their backyard in some remote countryside. Their original sin: They are deemed too risky by the banks to able to deserve a business loan.
Well, I hope you already get the picture of who I am referring to.
Essentially, microfinance is meant to help fund the entrepreneurial and business ventures of these poor entrepreneurs. According to the BSP, “If provided on a sustainable basis, microfinance can help increase income, build viable businesses, reduce vulnerability to external shocks, empower the client, and improve the quality of their lives.”
(Related article: How to fund a startup.)
How to setup a Microfinance Venture in the Philippines
Quite ironically, microfinance services are already available in some rural and thrift banks. These are smaller banks usually serving the countryside. Savings and Credit Cooperatives are also among the most active providers micro-financial services.
So, if you are planning to setup this kind of venture, you can either form a bank or a cooperative.