Microfinance

What is microfinance?

Microfinance is also termed as microcredit. It is a type of banking system or method in which banking services are provided to the unemployed or the poor who otherwise do not have access to any other source of income. Most micro-financial institutions provide the banking credits to the humble, based people in the form of small credits, which are typically referred to as microloans. 

Microfinance is one step ahead in the direction of “Aatamnirbhar Bharat”, as it mainly aims to help the rural people and women from self-help groups attain self–sufficiency. 

The Microfinance Market

There has been a considerable increase in the microfinance sector in India over the past decade. Since the year 2007, we have seen an exponential rise in the microfinance sector. People now tend to attain self–reliance with the help of these microfinance institutions. India’s microfinance institution has seen a 10% increase in the microfinance sector, and this industry now contributes around 2.5 trillion dollars in the fiscal quarter. Also, the annual growth is at the rate of 8.4 per cent. The Reserve Bank of India (RBI) gradually changes the rules and regulations as per the requirements of the industries and also to curb the alleged excesses by the industry.

Examples

Over the years, there had been only non – government organizations (NGOs), microfinance banks, and public sector banks constituted in this particular sector of microcredit lending. But now, the time has changed and, along with that, has changed the nature of the market. Nowadays, nonprofit microfinance institutions are transforming into profitable business ventures to increase their insights and reach and hike their market scope. Every institution now aims to achieve levelled market heights. Many consumer finance companies like Citi Finance and GE Finance are venturing into the microfinance world. Along with these companies, the retail giants and the big sharks like Walmart, Tesco, Elektra etc., have entered the field of microfinance to try their hands out. Most of the micro finance-related companies consider curbing poverty, establishing sustainability and providing self–reliance as their major goal. But others still focus more on the selling of their products in the market as their primary target. 

Types of Microfinance products and services 

1.Microloans

Microloans, which are also referred to as microcredits, are given to unemployed or the needful poor people in order to help them attain self–reliance are small in size, in the range of $100. These loans help the micro industries increase their sales and contribute more to the market. The micro industries can be of various types like basket making, fabric making, sewing etc., and the average global interest rate charged on these microloans is about 35% approximately. 

2.Micro savings

These are the savings which allow individuals to save some needful amount for futuristic investment and business purposes irrespective of the minimum balance pressures. These micro saving accounts help individuals serve purposes which are exactly the same as the purposes the saving accounts of foreigners help them accomplish in the western countries. Various needful and future desires of people can also be fulfilled with the help of micro-savings.

3.Micro Insurance

Micro insurances provide securities against the risks of uncertainties of lives in various counties. But unlike traditional insurances, microinsurance has very less premiums and policy amounts. Yet it is a very good choice for the small scale marketers as they get stable and subtle market security with this component of microfinance. Examples of this kind of insurance include crop security measures and crop insurance, along with various measures and balances that seek to provide some relief on the microloans in case the borrower dies (terms and conditions applied). 

Benefits of Microfinance

The various benefits of microfinance include the following major points:

• Small or microloans help the small scale entrepreneurs become self–reliant and start a business for themselves.
• Provides security against unemployment.
• Gives various job opportunities to the unemployed and needful.
• Provides the exposure and atmosphere to grow financially in the corporate market space. 
• Curbs out poverty across the globe. 
• Provides a source of livelihood to the people and allows families to maintain a standard of their living. 

Conclusion

Microfinance has turned out to be a big game-changer in the market. Over 140 million people, or better say, borrowers, have been helped with micro-credits over the globe to start their new ventures. Microfinance not only helps people financially but also supports them to start a new phase in life. There has been an incessant flow of capital and investment in the MFIs, and with this increasing trend of using the respective sector, indeed has a very potent future.