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Microfinance is a way in which loans, credit, insurance, access to savings accounts, and money transfers are provided to small business owners and entrepreneurs in the underdeveloped parts of India.
The beneficiaries of microfinance are those who do not have access to these traditional financial resources. Interest rates on microloans are generally higher than that on traditional personal loan.
Table of Contents about Microfinance in India:
Microfinance includes the following products:
In some situations, recipients of microloans are expected to take some training courses, such as cash flow management or book-keeping.
Almost half of the population of our country does not have a basic savings account. However, this segment requires financial services so that their aspirations such as building of assets and protection against risk can be fulfilled.
Microfinance provides access to capital for individuals who are financially underserved. If microfinance institutions were not offering loans to this segment of the society, these groups would have resorted to borrowing money from friends or family members. The probability of them opting for fast cash loans or payday advances (that bear huge interest rates) are also high.
Microfinance helps these groups invest wisely in their businesses, and hence, is in alignment with the government’s vision of financial inclusion in the country.
1. Microloans in the range of Rs.20,000 – Rs.30,000 are availed the most in India. However, the category of loans in the range of Rs.30,000 - Rs.40,000 saw a rise of 56% between Q3 FY18 and Q3 FY19. ,
2. The microfinance industry has registered a growth of 44% YoY as on 31 March 2019. (As per CRIF High Mark Report)
Some of the significant features of microfinance are as follows:
Microfinance in India operates primarily through two channels:
Microfinance services are offered by the following sources:
Institutional microfinance encompasses the services provided by both formal and semiformal institutions.
A microfinance institution specialises in banking services for low-income individuals and groups. These institutions access financial resources from mainstream financial entities and provide support service to the poor. Microfinance institutions are hence, emerging as one of the most effective tools in reducing poverty in India.
While several MFIs are well-run with great historical records, others are operationally self-sufficient.
The different types of institutions offering microfinance in India are:
Microfinance institutions act as a supplement to the services offered by banks. Apart from offering micro credit, financial services such as insurance, savings, and remittance are provided. Non-financial services such as training, counselling, and supporting borrowers are offered in the most convenient manner as well.
Points to note:
Some of the microfinance companies that offer loans to the unbanked and under-banked population in India are as follows:
Although the documentation required for getting a microfinance loan varies between lenders, the following are the documents that are usually needed:
Microfinance has been lauded by many, as it is a clear passage to end the cycle of poverty, aid the marginalised sections, decrease unemployment, and improve their earning power. However, it has also received criticism from certain corners, as it was argued that microfinance actually makes poverty worse. The fact that some borrowers of microfinance use these loans to pay off their existing debts or fund their basic necessities reinforce these arguments.
The situation is more adverse in countries like South Africa where majority of microfinance loans are consumed by the borrower for basic necessities. When borrowers do not generate new income from the initial loan, they are forced to take out more loans to repay the former. This simply snowballs into a bigger debt trap.
You can apply for a microfinance loan by visiting the microfinance institution’s official website where you will find the link to apply for a loan. Duly fill the form and submit the necessary documents. The company will then verify the document and if they are found to be correct, the loan amount will be disbursed to your bank account.
You can also visit the nearest branch of the microfinance company and apply for a loan by submitting the necessary documents.
The rate of interest levied by Microfinance Institutions (MFIs) are higher as compared to those levied by banks as it is more expensive to process smaller loans as compared to loans offered by traditional banks. Also, most of the applicants who apply for MFI loans reside in rural areas due to which the cost of operation is high and hence the interest rate is also high.
Some of the documents you will have to submit in order to apply for this type of loan are:
Some of the eligibility criteria you will have to fulfil in order to avail an MFI loans are:
In most cases, female borrowers are not allowed to provide any collateral to avail an MFI loan.
A GST rate of 18% will be applicable on banking services and products from 01 July, 2017.
Microfinance loan disbursals have increased by 106.7% to Rs.64,899 in the second quarter of the fiscal when compared to Rs.31,261 in the same quarter of the previous fiscal year. The number of loans disbursed rose from Rs.88 lakh to Rs.1.85 crore a year ago as per MFIN’s Micrometer report for July 2021 to September 2021 quarter.
The gross loan portfolio (GLP) of the overall microfinance industry has increased by 5.16% from Rs.2,31,778 crore as on 30 September 2020 to Rs.2,43,737 crore as on 30 September 2021. A total of 5.65 crore unique borrowers have been served via 10.52 crore loan accounts as on 30 September 2021. The GLP of NBFC-MFIs rose 15.45% to Rs.81,408 crore as on 30 September 2021.
In the previous year, the GLP stood at Rs.70,512 crore. NBFC-MFIs have disbursed loans amounting to Rs.19,672 crore through 54.26 lakh accounts. Last year, loans worth Rs.8,155 crore were disbursed via 25.99 lakh accounts. Compared to the second quarter of the previous financial year, a rise of 15.54% was observed in the average loan amount disbursed by NBFC-MFIs per account which stood at Rs.36,251 during the same period this year.
9 December 2021
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