In recent years, the once intimidating nature of financial institutions has become more approachable with customer-friendly services. The earlier apprehension has significantly reduced, and people are less reluctant to avail banking facilities, like applying for loans, etc. Unfortunately, this amicable scenario doesn’t extend to the underdeveloped regions of India.
Unlike in metropolitan or developed cities, rural regions are still affected by the poor availability of formal banking services. People in these regions heavily rely on their income earned via daily wages and business or are dependent on their spouses. In case of the demise of the primary earner or a monetary emergency, they become vulnerable to the financial imbalance that follows.
However, the government has introduced institutions that provide microfinance support to low-income groups. Microfinance offers banking services like loans, credit, insurance, etc., to small business owners and entrepreneurs from these regions.
Growing Presence of Microfinance in India
Microfinance is vital in promoting financial inclusivity, and lending credit to poorer sections of Indian society. It offers loans and credit to those at the bottom of the economic pyramid who previously had little to no access to formal financial services. These services have benefitted over 64 million Indians, creating more opportunities for low-income households.
The government and RBI have begun attempts to reach unbanked and underbanked citizens. They aim to provide them with funding through private limited companies and Micro Finance Institutions (MFIs). In India, the scope for growth in microfinance institutions is high. Financial analysts expect rapid growth boosted by government initiatives to achieve improved financial inclusion.
Through microfinance, underserved individuals or households can invest in their businesses with access to financial products. The following types of microfinance products are available in India:
● Micro-loans: It allows individuals to borrow small sums of money without providing any collateral
● Micro-savings: These savings accounts are available for entrepreneurs to operate with no mini. balance
● Micro-insurance: They offer insurance coverage to borrowers of microloans for a comparatively low premium
Individuals can acquire funds for various business-related activities with these microfinance products. It includes working capital, cash flow, new business ventures, daily expenses, salaries, debt consolidation, etc. A micro-loan is ideal for those facing difficulties in availing of business loans.
With nearly half of India struggling to avail of basic banking facilities, microfinance helps them fulfil their aspirations of building assets. Without it, people would feel compelled to borrow money from family, friends or shady lenders. They would have had to consider fast cash loans or payday advances with high-interest rates.
Recent Developments in Microfinance
The government has been able to align its vision of financial inclusion through microfinance, helping low-income groups invest in their businesses. In 2022, the RBI increased its eligibility criteria for microfinance loans to households with an income of ₹3 lakhs p.a. While removing the interest rate cap on these loans, they also asked lenders to appoint board-approved policies on pricing.
According to the statement put out by RBI on the matter, “All collateral-free loans, irrespective of end-use and mode of application/processing/disbursal. Provided to low-income households, i.e., households having annual income up to ₹3 lakhs, shall be considered as microfinance loans”.
To prevent unfair practices, the RBI has set regulations that don’t permit lenders to charge a penalty on pre-payment of loans or credit repayments. For delayed payments, penalties are levied on overdue and not the entire loan amount. Furthermore, the RBI will closely monitor the rates charged by lenders to ensure they remain within a reasonable range.
The progress of microfinance in India is reflected in the number of flourishing businesses spread across the country. If you, too, want to avail additional funds for business ventures, head to Bajaj MARKETS and apply for a hassle-free and quick loan today!