Microfinance is a banking service offered to low-income individuals or groups who wouldn’t have access to financial services. Such institutions participating in microfinance provide lending. These microloans can vary from as small as Rs 5000 to under Rs 50,00,000.
As reported by Bloomberg, financiers have replaced philanthropists in the microfinance industry. Ever since this happened, consumer protection has been weakened. Taxpayer-funded development banks, which could fix the problem, are instead channelling hundreds of millions of dollars set aside for poverty relief into some of the most predatory lenders.
However, banks provide extra services involving checking and savings accounts. The goal of microfinance is to allow low-income people to become self-sufficient. At times, you require urgent finances due to unforeseen circumstances. Short-term personal loans are taken in such scenarios.
Key Takeaways
- Microfinance shows banking services for low-income individuals or groups with access to financial services.
- Microfinance allows people to take on small business loans safely.
- Most microfinancing operations occur in developing nations, such as Bangladesh, Cambodia, India, Afghanistan, etc.
- Like traditional lenders, microfinanciers charge interest on loans and institute repayment plans.
Understanding Microfinance
Microfinance services offer required financial assistance to unemployed or low-income individuals. Unfortunately, people with incomes below the poverty line or with limited financial resources may not earn enough income to meet the financial qualifications. Due to insufficient funds, there is a halt to conducting business efficiently.
For example, when a microfinance institution (MFI) approached Mounika, a beedi roller, offering a loan of Rs 10,000, Mounika quickly said yes. She bought a sewing machine with the money and started a tailoring business, dividing her time between studies and the new machine.
Microfinance Products and Services
Microfinancing organisations support a large number of activities. It ranges from offering the basics, such as bank checking and savings accounts. These programs can focus on skills involving bookkeeping and cash flow management. Activities done for promoting microfinance products and services also include technical or professional skills like accounting.
As opposed to conventional financing situations, in which the lender is concerned with the borrower having sufficient collateral to cover the loan. Various microfinance organisations focus on helping entrepreneurs become successful.
Numerous microfinance organisations focus on helping entrepreneurs succeed. Earlier in financial institutions, the lender was primarily concerned with the borrower to inhibit adequate collateral to cover the loan.
Financial and Business Education
Business owners seek help from microfinance organisations to upscale their business ventures. Microfinance organisations provide a general money-management class for businessmen. These lessons cover understanding interest rates and the concept of cash flow. It teaches how to finance agreements and save accounts work. A business education is crucial for you to know how to manage your budget and debt.
Customers apply after getting an education about the business. In a bank, a loan officer helps borrowers with applications, oversees the lending process, and approves loans. The loan, sometimes as little as Rs 10,000, may not seem like much to some people in the developed world. However, for many impoverished people, this figure is often enough to start or sustain a business. It helps to engage in profitable activities.
Advantages of Microfinance
Microfinance-related operations benefit almost 174 million people. However, these operations are only available to the world’s poor. An estimated 1.7 billion people lack access to establishing financial accounts.
The advantages of microfinance are way more than the direct effects of availing people of a capital source. Entrepreneurs who create successful businesses help to create jobs, trade, and promote economic improvement within a community.
Conclusion
In a nutshell, the microfinance industry is essential to promoting small-scale businesses. Microfinance empowers small enterprises and individuals by offering access to financial services. These microfinance services include loans, savings, and insurance.
It helps underserved communities to effectively grow businesses. It also ensures the reduction of poverty and fosters economic inclusion. To support entrepreneurship, microfinance plays a primary role in enhancing financial independence as well as sustainable development.
