Micro credit refers to the provision of small loans and financial services to individuals who do not have access to the conventional banking services. This form of credit is highly helpful to the economically underprivileged sections of the society who cannot avail regular financial assistance from normal banks and other financial institutions.
What is Micro Credit Scheme (MCS)?
Micro Credit Scheme (MCS) refers to a loan scheme that is primarily provided by micro financial institutions (MFIs). These financial schemes are offered chiefly for micro enterprise activities such as agricultural activities, artisan activities, etc. These schemes assist low-income individuals to engage themselves in income-generating activities for a sustainable livelihood. Micro credit schemes are provided to self-help groups as well in order to enable them to set up ventures and earn incomes. These schemes are helpful to tribal people as well.
Misconceptions regarding poor people’s financial knowledge that led to the provision of micro credit schemes
In the past, there were many fallacies that poor individuals did not have proper knowledge to take care of the finances carefully. Some of the common misconceptions included:
- They do not have creditworthiness.
- They are not educated.
- They lack the ability to save money.
- They cannot repay loans.
These misconceptions led to the false idea that poor people in rural and urban areas are not eligible to avail regular banking services. In order to address these misconceptions, micro credit schemes were introduced to offer affordable financial assistance without the involvement of conventional banks.
Misapprehensions about women’s financial knowledge
In many rural as well as urban areas, poor women are not provided with access to financial assistance due to discrimination from men. These micro credit schemes serve as a great boon to women as they help them to be financially independent.
The functioning of self-help groups has shown that low-income individuals, especially women, have the ability to handle finances proficiently.
Common Activities that are funded by Micro Credit Schemes (MCS)
Micro credit schemes are provided exclusively to help out people who live below poverty line (BPL) by offering them credit to start small business ventures in multiple sectors for earning incomes. Some of the most common types of activities that are sponsored by micro credit schemes include:
- Cottage industry activities
- Agricultural and farming work
- Artisan activities
- Small scale industrial activities
Evolution and Development of Micro Credit Scheme (MCS)
The micro credit sector has been existent in India from a very long time. It started to gain excellent modifications during the 1990s. Many alterations were made to the micro credit system and its policies in order to make the whole system more organised and efficient. One of the main organisations that worked towards developing the MCS is the Small Industries Development Bank of India (SIDBI).
The Micro Credit Scheme was officially launched in the year 1994. The SIDBI has a great credit delivery system that works towards offering credit schemes to the weaker sections of the society at a micro level.
How are Micro Credit Schemes (MCS) distributed to beneficiaries?
Micro credit schemes are offered to individuals, micro units, self-help groups, small industries, etc. through various channels. In India, there are mainly 4 types of bodies that offer micro credit schemes to individuals and self-help groups and they are:
- Qualified bodies that choose their beneficiaries for micro loans
- Public bodies that accumulate money in order to provide micro credit to individuals as well as groups
- Certain banks that agree to offer micro loans
- Social bodies such as non-profit organisations and non-governmental organisations that extend tailor-made support to micro credit beneficiaries
Some of the organisations that have taken up the responsibility of providing micro credit schemes to beneficiaries include:
- Small Industries Development Bank of India (SIDBI)
- National Bank for Agriculture and Rural Development (NABARD)
- National Handicapped Finance and Development Corporation (NHFDC)
- Micro Units Development and Refinance Agency Ltd. (MUDRA)
- National Scheduled Tribes Finance and Development Corporation (NSTFDC)
Characteristics of Micro Credit Schemes
Micro credit schemes come with great benefits that assist low-income individuals to be financially secure and independent. Some of the characteristics of micro credit schemes are:
- They are very affordable.
- These schemes offer small amounts of money.
- They are typically not governed by the regular banks.
- These can be taken by beneficiaries without providing any collateral or guarantee.
- They can be used for self-employment projects and activities.
- Some of these schemes even come with micro insurance and micro leasing.
- Keeping the financial condition of the beneficiaries in mind, the interest rates for micro loans are very low and economical.
- The repayment periods for micro credit schemes are decided after assessing the nature and duration of the self-employment activity.
- Some micro credit schemes even offer repeat loans to individuals or self-help groups depending on the necessity.
With the help of micro credit, even people belonging to the economically underprivileged sections of the society can start to gain and sustain economic self-sufficiency.