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Should you invest your Money with a Microfinance institution?

Finance

Should you invest your Money with a Microfinance institution?

 People usually think of and turn to financial institutions whenever they have surplus cash for investment or savings. With numerous financial institutions in the country, the decision to choose which one to turn to becomes even harder. In Ghana, Kenya, Nigeria and other African countries there are smaller financial institutions apart from the major banks, who serve the micro-businesses and SMEs. However, not all depositors and investors have had pleasant experiences with microfinance institutions in countries like Ghana, despite their high interest rates. It does not also imply that the public should stop doing business with them.

Size of the Microfinance Institution

One of the criteria you should be looking at is the size of the microfinance institution you are about to invest with. This is important if you’re investing huge sums of money. To be safe, the money you’re investing should not exceed more than 10% of the total the institution’s funds under management. This cushions you in the future when your investment matures and you want to make a withdrawal.

How Long Has it Been in Business?

It’s quite a nervy feeling when giving your money to a microfinance which is new in business, especially where the management has little experience running a financial institution. Ideally, those that have stayed in business for longer periods, say a decade, have track records and history you can refer to and make an informed decision. Also, it shows that you can be comfortable with the management of the institution, for having kept the business in shape for more than 10 years and as such a 6 month or 1 year investment should not be a major problem.

Managerial Competence

Microfinance institutions spring up every now and then and you find one on each major street of Accra. But they also collapse almost as often as a new one is started. In my previous works conducted on why microfinance institutions fail, I found that managerial incompetence is a major reason. If you cannot assess the managerial competence of the institution, get a financial expert who can, before you part with funds into the sometimes greedy and incompetent hands of some of these managers of microfinance institutions.

How much are you investing?

I advise that you do not give a 100% of your money to a microfinance institution just because of the comparatively higher returns or interest they promise and pay. Why not? The risks that some of these institutions take with investors and depositors funds are sometimes too high not to result in losses. This affects your withdrawals with delayed payments. You can commit a maximum of 20% of your investable funds with them.

Investing your money with a microfinance institution often carry a higher risk than the bigger or universal banks, but these pointers should help you when giving them your money.

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