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Microlending 1 – The Beginning
I know that micro loans can be highly profitable because, in real life, I personally know a few people who are involved in this asset class. They specialize in consumer loans, lending small amounts to a large number of people. The default rate is actually very low, and the profit margins are insanely high—so high that if someone told you about it, your first reaction might be to think it’s a scam.
Naturally, opportunities like this are typically closed off to outsiders. Since they’re so lucrative, there’s no need to advertise or invite others in. It’s usually a private game played by a few wealthy insiders who pool their money together, hire a small team to manage an app, distribute flyers, and fine-tune big data models. They lend out their own capital, avoiding many of the hassles that come with dealing with traditional financial markets.
Even though I didn’t have access to such opportunities back then, I kept an eye on this space, because the return rate that the few people mentioned to me in passing was jaw dropping and was just stuck in my mind ever since. Over time, I encountered other micro loan businesses—some on the verge of going public, others fully funded by institutions. But in every case, there was no way for me to participate.
Then, by a stroke of luck, I discovered something interesting. One of the early investors in a startup I had already invested in happened to be in a group of people who had invested in a micro loan company—and they had been involved for several years. What’s more, they were open for others to participate. Naturally, I became curious:
- Where did they lend?
- What are the underlying assets?
- Who are the borrowers?
- How is the loan approval process managed?
- What’s the default rate?
- Who are the lenders?
- What are the risks involved?
- What’s the expected return and lending cycle?
- How big is the operation?
- What’s the track record of performance so far?
- How did they gain access to this opportunity?
- How can one participate now?
Till next time, stay tuned!