You can see the presence of microfinance in every part of the world. It is a crucial cog in the wheel that aims towards providing financial inclusion. It is available in affordable financial products that are not limited to credit cards or personal loans. Instead, it is available in other products, including fixed deposits, savings, and other banking services. It is the one by which the economy achieves overall development.
The broadest and accepted definition of microfinance loans states the credit reference to the unemployed people or those who received minimum wages as their salary. The institution that participates in the process of microcredit is commonly known as the microfinance companies.
There are some common objectives of microfinance institutions in India. These are:
- To promote the economic and social development of the people coming from weaker sections of the economy
- To strengthen the self-help group and to use them as a tool for the economic development of the society
- To extend the financial liberation of women and women empowerment while supporting the women entrepreneurs
India and microfinance loan
Microfinance is now an old concept. People have heard various definitions of microfinance throughout the period. We saw the example of microfinance in the southern part of India in Kerala’s money lending groups. The modern version of the concept of microfinance loans in India started in the year 1970. During this period, microfinance institutions came into existence. The whole setup of microfinance helps the Indian government to alleviate poverty. These institutions started in 1970, but the company gained its presence and prominence from 1990.
Out of all these, the Self Employed Women’s Organisation Bank became famous within no time. Nowadays, you can count on the microfinance company that provides a GECL loan. There are around 20 companies in the country. At the same time, no one can rely on the exact estimation of these microfinance companies as the cooperative organizations do work as one of these companies.
In India, the models are a mixture of innovative and traditional methods that caters to an enormous section of Indian people, especially those who face difficulties in looking forward to the credit availability in India. The standard model in this scenario happens to be the Grameen model. This model came into effect after the success of the model in Bangladesh. In this self-help group model, the number of members of the group ranges from 5 to 20. All the members are homogeneous. The government also sponsors some microfinance initiatives, including the National Bank for Agriculture and Rural Development. With this, the institutions came a long way to aid small and independent entrepreneurs and business institutions.
How do the companies provide loans to the borrowers?
The target segment caters to credit facilities to people who did not have any previous credit accessibility. The loan amount helps them immensely. One cannot deny the risk factor involved with this. However, this needs to be factored in by every micro-financing company.
Moreover, once the company knows the purpose, skill, and educational qualification, the institution offers the borrower a microfinance loan or GECL loan. It provides unique avenue to start with new business opportunities. There are various kinds of loans that one can avail of from micro-financing institutions. One can use these for multiple purposes, including:
- To improve the home condition
- An emergency medical expenses
- To help out the home-grown entrepreneurs
- To get help in home extensions
The micro-financing companies have also created the initiative to offer credit facilities to various micro-financing enterprises. It fills up the gap in the credit system. In this way, these small enterprises can realize their dream.