Do Not Call
Table of Content
Microfinance refers to the provision of small loans and other financial services to individuals who do not have access to traditional banking. It enables low-income earners and small business owners to increase their income and improve their standard of living.
Microfinance services also encompass savings, insurance, and money transfers. It plays a significant role in reducing poverty and advancing financial inclusion through Microfinance Institutions (MFIs).
These loans are intended to meet the diverse financial needs of individuals, particularly those with low income. They play a key role in encouraging self-employment and contributing to economic development. Here are some commonly offered types:
Emergency Loans
These loans are interest-free and accessible throughout the year. They assist individuals in managing unexpected expenses such as medical emergencies or funeral-related costs.
Income Generation Loans
These loans are designed to support individuals who intend to start or expand small businesses. The loan amount depends on the borrower’s business plan and repayment capability.
Education Loans
Education loans provide financial assistance to families for their children’s schooling. They cover tuition fees, books, uniforms, and other academic expenses.
Individual Loans
These loans are extended to individuals who can offer collateral or present a guarantor. The microfinance institution evaluates the applicant’s income and business viability prior to disbursal.
Consumer Product Loans
These loans enable borrowers to purchase essential household items such as solar lights, cookstoves, or mobile phones. The purpose is to enhance living standards and day-to-day convenience.
Mid-term Loans
After successfully repaying an initial business loan, a borrower may qualify for a mid-term loan. It offers additional funds along with flexible repayment options.
Agriculture Loans
These loans are intended for farmers requiring funds to purchase seeds, fertilisers, or agricultural tools. They aim to boost crop yield and overall farm productivity.
Dairy Cattle Loans
Dairy cattle loans assist individuals in acquiring new cattle or upgrading their dairy facilities. This leads to increased milk production and contributes to stable income generation.
Microfinance provides immediate financial assistance to individuals with low income. The following are some of the benefits of microfinance:
Promotes Financial Inclusion
Microfinance assists individuals who do not have access to traditional banking services. It provides opportunities to save, borrow, and obtain insurance products.
Encourages Entrepreneurship
Microfinance offers small loans that enable individuals to start or expand businesses. This boosts income generation and enhances their quality of life.
Reduces Poverty
By allowing individuals to invest in businesses, education, or healthcare, microfinance improves their standards of living and reduces poverty.
Empowers Women
In India, a significant portion of microfinance services are targeted towards women. These services provide financial independence, enabling women to contribute to household decisions and income.
Fosters Community Development
Microfinance supports the growth of local businesses, which leads to job creation and the availability of services. This promotes the overall development of the community.
Access to Instant Funds
Microfinance delivers quick financial support to individuals with limited or no employment. It provides loans on simple terms to those who may not meet conventional lending requirements.
Creates Employment Opportunities
When entrepreneurs use microfinance to establish businesses, they create jobs within their communities. This helps stimulate the local economy through increased income and services.
Microfinance comes with unique features that make it accessible and beneficial for small businesses. Here are some of the key features of microfinance:
Microfinance loans are small in size, generally ranging from a few thousand to a few Lakhs
These loans are short-term, allowing small businesses to secure quick and easy capital
Group lending is a common practice where members support one another in repaying the loan
No collateral is required, which makes loans more accessible to low-income individuals
Many microfinance services in India focus on the financial empowerment of women
Microfinance in India supports low-income households by offering small loans and financial services. It mainly operates through two channels:
SHG-Bank Linkage Programme (SBLP)
Initiated by NABARD in 1992, this programme encourages economically underprivileged women to form small groups of 10 to 15 members. These groups save money regularly and provide loans to one another from their collective savings.
Over time, well-functioning self-help groups become eligible to receive loans from banks to establish small enterprises.
Microfinance Institutions (MFIs)
These are specialised organisations that extend small loans and other financial services. They typically create Joint Liability Groups consisting of 5 to 10 members. These individuals can take loans collectively or separately. MFIs serve those who do not have access to credit through conventional banking channels.
MFIs play a crucial role in supporting small businesses and promoting financial inclusion within underserved communities. Their unique approach allows individuals and MSMEs to access financial services that may not be available through traditional banks.
MFIs provide small loans to individuals without bank accounts or collateral, helping them start or expand their businesses
Many MFIs are digitising their operations, which facilitates faster and broader loan distribution through credit scoring systems
They offer savings and fixed deposit products, enabling individuals to manage their finances and increase their income
MFIs also provide financial advice to small businesses, helping them use funds effectively and achieve sustainable growth
Microfinance companies in India empower underserved communities by providing small loans and financial services. Here is a list of firms that are making a significant impact through microfinance across the country:
BSS Microfinance Limited
Annapurna Finance Limited
Arohan Financial Services Limited
Asmitha Microfin Ltd.
Muthoot Microfin Limited
Spandana Sphoorty Financial Ltd.
Asirvad Micro Finance Limited
Bandhan Financial Services Private Limited
Fincare Small Finance Bank Limited
Microfinance plays a crucial role in advancing financial inclusion by assisting low-income individuals. To sustain this system, numerous banks and financial institutions provide MFIs. Here are some of the top lenders that offer microfinance loans and services in India:
Ujjivan Small Finance Bank
This bank employs modern technology to provide financial services to people in remote areas. It offers savings accounts, gold loans, and home loans specifically designed for rural customers.
BharatPe
BharatPe provides small business loans and aids shopkeepers and small merchants by offering digital payment solutions and personal loans.
Bandhan Bank
Initially an NGO, Bandhan Bank has now evolved into a full-fledged bank. It continues to support small traders and low-income families while serving customers across India.
Bank of India (BOI)
BOI offers collateral-free microfinance loans to individuals with low annual household income. Loan limits go up to ₹2 Lakhs with repayment tenures of up to 36 months.
ICICI Bank
ICICI Bank also provides financial assistance to select microfinance institutions through their term loans.
To apply for a microfinance loan, you need to submit documents that verify your identity, income, and business information. They include:
Application Form
Completed application form with current applicant details
Passport-size photographs of applicants and co-applicants
Identity and Address Proof
PAN card
Passport copy
Ration card
Proof of office address to confirm business location
Business Structure Documents
Certified copies of AOA, MOA, or Partnership deed for business structure
Loan History and Purpose
Record of repayment showing loan repayment history
Proforma invoice for equipment to be financed
Income and Financial Statements
Audited financial statements from the last two years
ITR of partners or directors for the past two years
Bank account statements for the last six months
Microfinance is the practice of offering small loans and financial services to individuals who do not have access to traditional banking. It helps people start or grow businesses and improve their livelihoods.
Microfinance typically involves providing small loans to individuals in rural areas to help them start businesses such as tailoring, farming, or selling homemade goods.
To apply for a microfinance loan, find a suitable microfinance institution or bank and fill out their application form. Submit required documents like ID proof, address proof, and income details. If eligible, the lender will process your loan and disburse the funds.
Microfinance institutions charge higher interest rates than banks due to the significant operational costs involved in managing numerous small loans in remote areas. The rates can range from 16% to 25.99%, with an average of 30.50% in the last quarter.
Microfinance loans in India are offered in several types to cater to the diverse needs of low-income individuals. These include:
Agriculture Loans
Individual Loans
Income-generating Loans
Emergency Loans
Education Loans
Mid-term loans in microfinance help borrowers who have successfully repaid their initial loans. These loans provide financial support for additional needs, often with more flexible repayment terms.
Microfinance loans play a significant role in financial inclusion by extending credit to underserved individuals. They support small businesses and empower women entrepreneurs.
The three main types of microfinance include:
Micro-loans
Micro-savings
Micro-insurance
Microfinance institutions focus on providing small loans to low-income individuals with minimal requirements, aiming for financial inclusion. Banks serve a broader audience with larger loans, more services, and a focus on profit.
The main aim of microfinance is to provide financial services to low-income individuals or underserved communities. It enables people to become self-reliant and improve their livelihoods.
Microfinance is also referred to as microcredit. It involves providing small loans and financial services to low-income individuals or groups.
Academy by Bajaj Markets
10843
Navigate the tax maze with ease! Uncover Income Tax 101, demystify jargon with Terms for Beginners, and choose between Old or New Regimes.
7650
Unlock the world of credit! From picking the perfect card to savvy loan management, navigate wisely.
1601
Money Management and Financial Planning covers personal finance basics, setting goals, budgeting...
2963
Explore the investment cosmos! From beginner's guides to sharp-witted strategies, explore India's treasure trove of options.
150
Discover essential insights on various types of insurance in India.
1147
Welcome to Tech in Finance, where we explore the exciting intersection of technology and finance...
