Theory of Constraints; A money Lending Rendition

The Theory of Constraints is a management philosophy narrated by  Eliyahu M. Goldratt  in his book "The Goal" on how to deal with bottlenecks in your enterprise. This philosophy espouses the need to critically look at the process you go through in creating your product or service,your operations in putting together that service or product,and the process of earning money from all this.

What has this philosophy got to do with Money Lending? Everything.

There are many bottlenecks in this industry. These are some that have affected me

1. Dishonest Customers. These foul vines of human society render a money lending enterprise risky. Their dishonest character and nature reduces the amount of capital employed in service of others. This reduces the number of people to be served in the long run. the more dishonest customers, the closer to the business graveyard an enterprise.
   This can be treated by applying more careful investigation of the clients and also more determined collection on poor performing loans
2. The Nature of the economic environment. Economic environment of a market determines how far enterprises can thrive. In a liquid environment, enterprises thrive. In a liquid capital deficient environment, enterprises falter. Its just how that is. People fail to pay on time if there is a deficient supply of money in the concerned economy.
   This can be treated by retaining a certain ratio of debt:capital.... Cant advise on a safe ratio for money lenders but safe to move with bank observable ratios.
3. The regulatory environment: Many times, the regulatory environment does not favour money lending. Its biggest and riskiest clients (usually dishonest politicians) bite the very hand that supports them. They apply laws to decimate or paralyse money lenders and come back as clients without any shame whatsoever to borrow more money. its usually acted out as some kind of theater comedy on the floors of parliaments.
   The treatment here is to observe the policies imposed in the financial environment your acting in. If you cant play along, its better to exit the market outright.
4. Limited capacity of the entrepreneurial Financier: The more capital available to entrepreneurial financiers, the more people that they can serve. However this ties into all the other factors mentioned above.
   The treatment here is to network with other financiers and other honest and credible money sources to improve the money pool and be able to serve more credible and honest customers.

The gist of this piece is that if an entrepreneurial financier can overcome the factors mentioned above and many others not mentioned here,using the Theory of constraints as a base philosophy, some of these problems can be overcome.