Microfinance Loan

The microcredit facility enables low-income individuals and groups, generally lacking access to financial services, to apply for loans. 

Microfinance allows access to credit in consistency with ethical lending practices. This credit scheme aims to provide financial support to individuals and SHGs to kickstart a new enterprise, self-employed business, and other income-generating activities.

There are two approaches for extending microfinance services in India, including:

• Bank-led approach called Self-help Group – Bank Linkage Programme (SHG-BLP)

• Micro Finance Institution (MFI) led approach

Here are some of the main characteristics of the microcredit or microfinance loans:

• Access to Formal Credit: It ensures easier access to formal sources of credit to low-income individuals and groups

• Loan Amount: Microfinance institutions offer loans in smaller amounts, enabling low-income borrowers to repay them hassle free

• Economic Rates: These loans generally have low-interest rates and ensure quick access due to quick processing

• No Collateral Requirement: MFIs and banks provide these loans without collateral for easy affordability

• Flexible Repayment: These loans also offer flexible repayment tenure based on the nature of the occupational activity

• Repeat Loans: You can get an add-on or repeat loan from the same lender based on your repayment ability

While microcredit has varied eligibility and document requirements based on the scheme you choose, here are some of the basic requirements for these loans:

• The age of the applicant must be between 18 and 58 years, and they need to be from the low-income segment

• The minimum annual household income should be less than 3 Lakhs

• The business must be involved in an income-generating activity

The following are some of the documents you will need to furnish when availing of a microfinance loan:

• Valid KYC: Voter ID, Aadhaar card, MNREGA card, ration card, or PAN card

• Proof of Income: Form 16, Income Tax Returns (ITR), Family Income certificate, CIC Reports, or Balance Sheet 

• Bank Account Statements

The following are some of the positives associated with microfinance loans in India:

• Poverty Alleviation: These loans seek to provide financial support to start income-generating activities for low-income groups

• Financial Inclusion: Since accessing credit is challenging for these segments, microfinance loans have played a huge role in the inclusion of this financially excluded population

• Entrepreneurial Development: It aims to promote entrepreneurial ventures among economically backward people in rural and urban areas

• Community Development: Through group lending, microfinance enhances community-led growth at grassroots levels 

• Women Empowerment: To help them become financially independent, banks and MFIs provide these loans to women SHGs