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Microfinance Institutions

Microfinance plays an important role in the present Indian economy. Mainly, the poor or the underprivileged section of the society is getting immense benefits from the concept of microfinance. The organisations that lend this financial help to the under-banked section of the society are the Microfinance institutions. You can approach these institutions whenever you are in need of money as these organisations provide financial help to set up or establish a business on a smaller level.

Microfinance institutions not only give financial help to the poor section of the society but also educate them on how to utilise the offered fund in a better way. There are a number of such government and private financial institutions in India who are working closely to uplift the financial conditions of the poor section of Indian society. Various institutions have their own terms and conditions and based on that they provide money to the people who want to set up a new business or upgrade an existing one.

What is a Microfinance Institution?

MFIs are financial institutions working towards the upliftment of the needy and underprivileged section of the society by providing short-term loans to set up their own venture. They take a minimum or very calculated risk and fund the interested borrowers to help them get trained, setup and run a small-scale business. Microfinance institutions apart from giving financial help also educate people about the current market trends and help them compete in the present market. These financial institutions usually do not take any guarantee or ask for any kind of collateral from the borrower to lend money. This is where these institutions stand out from the traditional banking organisations. While banks are quite reluctant about lending money to the poor unemployed crowd considering them as high-risk components, MFIs are specially dedicated to provide all the necessary financial help to this section of the society. These organisations not only take the risk of funding them, but also work with them to ensure that the offered money gets utilised appropriately. They contribute in every possible way to uplift the underbanked section and make them financially independent.

What are the Types of MFIs in India?

MFIs operate in a number of forms and shapes in India. Though each of them have different formation and work nature, they all provide financial help to the needy section of the society in the form of loans and other financial products. Here are the details of the various types of MFIs in India:

  • JLG or Joint Liability Group
  • SHG or Self Help Group
  • The Grameen Bank Model
  • Rural Cooperatives

What are the Salient Features of MFIs?

There are a number of features that make the Microfinance institutions different from the formal banking organisations. Here are some of the key features of the MFIs in India:

  • These institutions offer loans to individuals who belong to the low-income group.
  • The loans that are offered by these institutions are of small amount and are known as micro loans.
  • MFIs provide loans to the borrowers for a short period, once they repay the loan they can again opt for another one.
  • MFIs give loans to people who want to start up a business of their own without any security or collateral.
  • The repayment frequency of the micro loans offered by MFIs is high and the borrower needs to repay the amount at quick intervals.
  • In most of the cases, the loans are provided by these organisations for income-generation purposes.

How an MFI Operates in India?

The working process of an MFI or Microfinance institution is not the same as the banks. The lending system of the MFIs is completely different from that of the traditional banking sector. In Microfinancing sector, an official gets appointed by the concerned financial institution who can get in touch with the group to discuss the loan application and disbursal procedure. He/she understands the skills and requirements of the applicant first and then on the basis of that he/she finalises the amount.

The appointed officer not only understands the business that the borrower is currently conducting or interested to start in future, but he or she also analyses the risk factor associated with it. Followed by that the official makes all the necessary rules and regulations for the team and arranges for their training to turn them into skilled professionals.

After that, various government, non-governmental organisations and banks give a loan if the borrowers follow certain rules set by the Microfinance institutions.

Who are the Customers of Microfinance Institutions?

The typical customers of microfinance institutions are individuals from the low-income group who don't have access to the conventional banking institutions. The customers are mostly self-employed individuals engaged in self-initiated businesses or are most often home-business entrepreneurs. The customers from the rural areas are generally farmers and individuals who are involved in income-generating activities on a very small scale which include small trades, food-processing, vendoring etc. However, the customers belonging to the urban areas are engaged in more diverse activities such as shopkeepers, artisans, service providers, street vendors and several others. The customers of the microfinance institutions are either poor people or non-poor persons who are having a very low-source of income compared to others.

What is the Success Rate of MFI?

India is currently one of the leading countries in the world which is successfully running lots of microfinance institutions. All the government and non-governmental organisations are running various projects to uplift the life of the disadvantaged section and the success rate is quite high. The job of these institutions doesn’t end with just providing loans. They also stick to the borrower till they are capable to run their businesses on their own. As a result, the risk factor comes down and repayment chances certainly go high. So, it is on record that the success rate of the MFIs in India is very high and these institutions are growing with every passing day. The more successful the MFIs will be in India, more will be the improvement rate of the poor section in the country.

Which are the Prominent MFIs in India?

Following are some of the prominent financial institutions in India who are lending financial help to the economically-deprived segment of the society:

  • Bharat Financial Inclusion Limited
  • Spandana Sphoorty Financial Ltd
  • Share Microfin Limited
  • Asmitha Microfin Ltd
  • Shri Kshetra Dharmasthala Rural Development Project
  • Bhartiya Samruddhi Finance Limited (BSFL)
  • Bandhan Financial Services Pvt Ltd
  • Cashpor Micro Credit (CMC)
  • Grama Vidiyal Micro Finance Pvt Ltd (GVMFL)
  • Grameen Koota Financial Services Pvt Ltd (GFSPL)
  • Utkarsh Micro Finance Pvt Ltd
  • Ujjivan Financial Services Pvt Ltd
  • Swadhaar FinServe Pvt Ltd
  • Annapurna Microfinance Pvt Ltd
  • Arohan Financial Services Pvt Ltd
  • Asirvad Microfinance Pvt Ltd
  • BSS Microfinance Pvt Ltd
  • Disha Microfin Pvt Ltd
  • Equitas Microfinance Pvt Ltd
  • ESAF Microfinance and Investments Pvt Ltd
  • Fusion Microfinance Pvt Ltd
  • Janalakshmi Financial Services Pvt Ltd
  • Madura Micro Finance Ltd
  • RGVN (North East) Microfinance Limited
  • Satin Creditcare Network Ltd
  • S.M.I.L.E Microfinance Ltd
  • Sonata Finance Pvt Ltd
  • SV Creditline Pvt Ltd
  • Swadhaar FinServe Pvt Ltd
  • Suryoday Micro Finance Pvt Ltd
  • Adhikar Microfinance Pvt Ltd
  • Mahasemam Trust
  • Margdarshak Financial Services Ltd
  • Pahal Financial Services Pvt Ltd
  • Rashtriya Seva Samithi
  • Rashtriya Gramin Vikas Nidhi
  • Sahara Utsarga Welfare Society
  • Sahayog Microfinance Ltd
  • Saija Finance Pvt Ltd
  • Samhita Community Development Services
  • Sanghamitra Rural Financial Services
  • Sarala Women Welfare Society
  • Shikhar Microfinance Pvt Ltd
  • Uttrayan Financial Services Pvt Ltd
  • Vedika Credit Capital Ltd
  • Village Financial Services Pvt Ltd
  • YVU Financial Services Pvt Ltd
  • Hand in Hand (HIH)
  • RORES Micro Entrepreneur Development Trust(RMEDT)

Top 10 Microfinance Institutions in India

Name & Particulars Founded In Headquarter Branches Borrowers Contact Number
1. Bharat Financial Inclusion Limited 1998 Hyderabad, Andhra Pradesh 1600 above 7.3 million Phone: 91 22 2659 2375, 098866 74214, Toll Free Number: 1800 300 10000, Email: General Queries-info@bfil.co.in/Customer Queries-tollfree@bfil.co.in
2. Spandana Sphoorty Financial Ltd 1998 Hyderabad, Andhra Pradesh 586 nearly 4.2 million Landline:040- 48126666 / 44386648, Fax: 040-44386640, E-mail:contact@spandanaindia.com,Customer care no:18001205519
3. Share Microfin Limited 1989 Hyderabad, Telangana 666 More than 1.04 lakh Registered Office:+91 - 40 - 27158387 / 27158380, Corporate Office:+91 - 40 - 27808380 / 27808387, Fax: 040 – 27158225, Email:sml@sharemicrofin.com
4. Asmitha Microfin Ltd 2002 Hyderabad, Andhra Pradesh 509 Phone:+91 - 40 – 2717 4369,Toll-free number:1800 123 4369, Email:aml@asmithamicrofin.com
5. Shri Kshetra Dharmasthala Rural Development Project 1991 Karnataka 3, 79,8000 Phone:08256-277121, 277141, Executive Director:08256-277215, Fax: 08256 – 277116, Email:info@shridharmasthala.org, General Queries:skdrdp@skdrdpindia.org
6. Bhartiya Samruddhi Finance Limited (BSFL) 1996 Hyderabad, Andhra Pradesh 87 3.5 millions Phone:+91 40 6658 5800, Delhi Office:011-4173 0252, 4173 0540, Hyderabad Office:+91- 040 - 6658 5800/01, Fax: +91 -040 - 6658 5802, Mail:info@basixindia.com
7. Bandhan Financial Services Pvt Ltd 2001 Kolkata, West Bengal 385 11 million Phone:033-6609-0909, Banking Support:033-6633-3333, Toll-free number:1800-258-8181, Fax: 033 6609 0502, Email:customercare@bandhanbank.com, info@bandhanmf.com
8. Cashpor Micro Credit (CMC) 1993 Varanasi, Uttar Pradesh 247 Head Office:0542-2505590-91-92, Toll Free Number:18004191114, Email:headoffice@cashpor.in
9. Grama Vidiyal Micro Finance Pvt Ltd (GVMFL) 1993 Tiruchirappalli, Tamil Nadu 326 1.274 million Phone:+91-431-4500000,+91-431-2750393, Fax:+91-431-2750393, Mail:contact@gvmfl.com
10. Grameen Koota Financial Services Pvt Ltd (GFSPL) 1999 Bangalore, Karnataka 390 1,445,822 Phone:080 3041 2000, Corporate Office:080 2263 7300, Registered Office:80 2263 7200, Toll free:1800 425 0205, Fax:+918026643433, Mail:info@grameenkoota.org

How are MFI Institutions Changing the Lives of Poor in India?

Microfinance institutions are definitely changing the lives of the financially weak persons in the society. In India, a large skilled section was deprived of mainstream banking services for a very long time. Banks used to show very less or no interest to lend money to this economically backward populations due to the high-risk factor.

But, the scenario has changed now. These days, various financial institutions and government organisations are coming forward to lend a small amount of money to these people to assist them set up their own business. This small help is not only helping certain individuals in the society but also helping to bring down the unemployment percentage in India.

When a small business is started, it also widens the employment opportunity for others in the due process. To ensure that more people come into mainstream jobs or works, most of the microfinance organisations while providing the loans set criteria that the borrowers have to employ others like them when their business will be successful. In this way, each small step taken by these institutions help to counter the unemployment problem in India.

Now, as less-educated and illiterate persons are getting employment in small set up. it is helping them to be financially independent thus making their lives better. At present the unemployment situation in rural India is serious and the MFIs can play a big role to counter this problem effectively.

How MFIs Give Loan to the Borrowers?

Giving micro financial assistance to the poor sections of the society is a very complex matter. But the microfinance organisations do this task with perfection. The administrative officer has to visit the place, interview the borrowers and analyse their skill. This entire process takes time, energy and manpower. Most of the time the financial institutions arrange for all the necessary training to develop them into skilled labour. Some of the vital areas considered by MFIs before giving out loans are as follows:

  • Loan period- Sometimes a loan is given to the borrowers for short duration of time which might range from a few months to 1 year. The repayment of the loan is done on monthly, weekly or on daily basis.
  • Risk factor- The field officer has to conduct a detailed analysis of the repayment capability of the applicants before approving the loan. The repayment ability is assessed on the basis of various criteria and this task is conducted by the officer.
  • Education- The field officer also checks the education level of the borrower as to run a successful business education plays a vital role.
  • Specialised skill- The borrower should have a complete or a minimum knowledge of the business. MFI expect the borrower to have substantial knowledge of the business he/she is going to pursue.
  • Agreement- There will be an agreement between the borrower and the institution providing the loan. The agreement will include repayment procedure and allocation of funds. Both parties have to agree and then the final allocation of funds will take place.

How are MFIs Helping People to Save for Future?

Microfinance institutions apart from lending money also work closely to educate people about the ways of saving their hard-earned money. When an individual or group of people take loan MFI officials ask them to save a small amount from their income for serving their future needs. Hence, every month or week they contribute a reasonable money to a common fund. This fund is further invested in various policies to give the maximum profit to the borrowers. From this fund, borrowers can take out a small amount for meeting their urgent needs like paying school fees of their children or repairing their houses.

In this way, when people understand the benefit of saving and get to know the ways to invest their money profitably, it helps them to secure their future. The contribution given by each member is just a few rupees and the lion’s share of their income is given to them to meet the daily or monthly expenses.

What are the Restrictions on Usage of Microcredit from MIF?

The micro financial institution does not give loan assistance for certain businesses. Some of them are listed below for your ease of reference:

  • If you have any other loan or debt, microfinance institutions will not come forward to your help.
  • Your business plan cannot be about production or manufacturing of tobacco or alcohol.
  • The borrower cannot take micro loans from these financial institutions to set up gambling business.
  • You cannot purchase any land or property if that does not belong to the business for which you have taken a loan from these institutions.
  • Any illegal or unsolicited business will not be funded by microfinance institutions under any circumstances.
  • MFIs don’t provide loans to meet the borrower’s personal need. The loans are provided only for business or other income-generating purposes.

How do MFIs help to Provide Insurance for Businesses and Individuals?

Life and business are uncertain as well as vulnerable to accidents. So, to counter any unwanted situation MFIs provide insurance policies to businesses as well to individuals. Various microfinance institutions have made tie-ups with various banks to provide them with insurance cover at a minimal cost. They offer various types of insurances like property insurance, life insurance, health insurance and several others. The terms and conditions for each of these insurances are determined by the insurance providing companies.

How are MFIs Empowering Women in India?

As per the current reports, microfinance institutions are playing a major role in empowering the women force in India. By offering financial services to the poor unprivileged women of the country, the institutions have opened a door for their economic growth. Uneducated, poor and unemployed women usually don't get access to loans from typical lending organisations and this is where the MFIs have come to their help. They provide women access to finance services and offer them with easy loans, saving accounts, insurance and several others as per their need, eligibility and requirement.

It is seen that when women are given access to financial means, they utilise the money for the benefit of their families which strengthen the local economy and makes the health condition and educational access better. As such, the MFIs provide easy financial help to women as they have proven to be credible borrowers with a better sense of responsibility.

After availing financial help from the MFIs, women have turned more positive, confident, taking part in decision-making and coming forward for the benefit of the society. Women who were earlier stuck in their household, have become more socially active with increased mobility. This shows how MFIs are empowering the women in India and paving grounds for their happy, healthy and prosperous future.

Can MFIs Eradicate Poverty from India?

Though the question is very simple, its answer is quite complex. Poverty in India is rising at an alarming rate. Lack of education has lead to unemployment and that in turn has invited extreme poverty. With the introduction of microfinance by the MFIs, the poor section of the society is now able to get funding for business and other money-earning activities. Along with economic support, the organisations are also offering them a scope of education. Thus saying MFIs only help in setting up business will be completely wrong. Apart from setting business, they also help to educate people by conducting fast-track training session to build a skilled and well-equipped workforce. Moreover, with new start-up businesses, more employment possibilities will emerge. As people will get employed and start earning, the poverty ratio will come down slowly. So, it can be said that MFIs can play a very big role in eradicating not only poverty but making people self-sufficient economically.

The microfinance institutions have paved the ground for the under-banked section of India to change their financial status and take themselves up to the high societal pedestals. You can take a loan from these organisations without any security for a certain time-period. Since these institutions don’t set any stringent eligibility criteria for the borrower’s people can take loans whenever they feel the need without any inhibitions. The only thing that the institutions lay focus on is that the borrower must be from the low-income group and the money is taken for income-generation purposes. Hence, if you are facing issues while getting loans for setting up business due to your bad economic condition, opting for microloans from the MFIs is a feasible and beneficial option.

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