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Micro Credit

Last updated on 2013-10-31 13:30:08

At the core of its operation, Spes Nova helps source funds for micro-loans.  By providing an interactive website on the internet, Spes Nova allows potential loan sponsors to search through databases of credit-worthy entrepreneurs in impoverished countries.  The sponsors may target individual loans by country, by region, by type of venture or simply by supporting individuals or situations that speak to them.  Sponsors also have the options of making non-specific loans to individual MFIs (all of which will be used to support lending activities, but on a non-designated, portfolio basis) or to support a group of loans in a designated region.  The sponsors are able to provide support in increments as small as $25 or as large as they wish, becoming part of a syndicated loan or supporting a loan outright.  The underlying loans are typically 6-12 months in duration.  Through Pay Pal, Spes Nova collects funds from its sponsors, provides funding of the designated loans through local MFIs and collects the repayments of the loans from local MFIs.  Spes Nova maintains records for the sponsors that allow them to track the progress of the loan(s) they have made and the repayment process.  As they receive repayments, sponsors choose whether to get their money back or make new loans.  Sponsors also have the option of donating all or a portion of their commitments to help fund Spes Nova.

Importantly, Spes Nova uses the term “sponsor” rather than “donor”.  While backers who chose to support loans need to understand that they may not get repaid, Spes Nova’s objective is to source and manage performing loans.  The loans will provide critical funding for the working poor, but are not intended to be outright gifts to loan recipients.

Consistent with its mission, Spes Nova does not offer its sponsors interest on their loans.  However, Spes Nova will charge a modest fee, well below the market interest rates charged by MFIs or the capital markets funding MFIs.  Spes Nova currently expects to cover its own expenses with this fee, along with the charitable donations from its sponsors.  It also hopes to ultimately reduce the interest rates charged by its MFI partners to 8-13% to cover their expenses in identifying and administering the loans.  As a result, Spes Nova is targeting total interest rates of 10-15%, less than half the 25-40% currently charged by MFIs.  As Spes Nova develops scale, any surplus from the fees it charges could be used for additional educational purposes, to support local projects in the areas where it lends and/or to reduce Spes Nova’s fees in the future.

Spes Nova relies heavily on its partnerships with existing MFIs.  These partnerships are vital to Spes Nova’s long-term success in at least three critical areas.  First, only the MFIs have the local representation and infrastructure to efficiently manage and process the loans.  Spes Nova will be leveraging the MFIs’ existing personnel and operations, all of which are vetted to ensure proper handling.  Second, Spes Nova relies on the MFIs’ ability to identify credit-worthy individuals and ventures.  As distant outsiders, Spes Nova and its sponsors cannot hope to have the evaluation skills to differentiate credit-worthy opportunities or to avoid outright fraud.  And third, Spes Nova needs the MFIs in order to satisfy local regulatory requirements.

It is important to note that Spes Nova will not be competing with MFIs.  MFIs tend to be constrained by capital, not by the ability to add infrastructure or handle increased levels of transactions.  In effect, Spes Nova is simply a new form of significantly less expensive capital.  Spes Nova will be working with the MFIs, not crowding them out or limiting their future development.