You must have come across the terms ‘microfinance’ or ‘microcredit’. Read ahead to know what they are and how they are different from traditional loans.
Microfinance or microfinancing services cater to small businesses and low income individuals. Often these services are for persons who do not have access to conventional or any other banking services.
If you are searching for ‘microcredit meaning’, there are various self help groups, smaller banks, or even bigger banks who offer micro loans known as microcredit.
Micro loans are very important in a country like India as most of the citizens do not have access to proper banking services. Some features of microfinance are -
Even though microfinance and micro loans are terms that are often used interchangeably, there are many other microfinance services available. Take a look at the three types of microfinance services -
These are savings accounts for entrepreneurs and small businessmen and do not require any minimum balance to operate. This helps businessmen build discipline around saving money and even earn interest on it.
These are often provided to customers who take micro loans. They have lower premiums as compared to other insurance policies.
These are also referred to as ‘small credit’ and are collateral free loans. The goal often is so that entrepreneurs can outgrow small loans or microcredit and proceed to more traditional loans.
There are two types of channels through which microfinance works in India -
These organizations work in the sector of microfinance primarily. They may provide group loans or individual loans.
These MFIs often provide loans online. These steps can help you avail micro loans online -
STEP-1: Visit the website of the MFI from where you want to take a small credit.
STEP-2: Click on the ‘Apply Now’ and select the type of loan you want.
STEP-3: Follow the steps as directed and upload the necessary documents.
STEP-4: Once your documents are verified, you will get your loan amount in your bank account.
This initiative involves financially backward women who are trying to start a business or an income channel. Women form groups of 10-15 members and these loans are backed by banks in later stages.
This channel is the most popular in the country and once these groups become self-sufficient, they can function with minimal support. These loans generally require you to be a part of the SHG and cannot be availed online.
Microfinance loans or micro loans are mainly for women or small entrepreneurs from the rural or underdeveloped areas. These loans help the people who do not have the means to have traditional bank accounts.
Such loans make it easier for them to start or grow their own business. This way they too can eventually move to more traditional banking services.
Yes, some Microfinance Institutions provide micro loans online and you can avail them.
You don’t necessarily have to be a part of a SHG to get a micro loan. These loans can be availed as an individual as well.
The minimum and maximum amount that you can avail as a small credit depends on the loan provider and your creditworthiness. In most cases, these loans range from Rs.20,000 to Rs.40,000 and can vary.
The interest rates of microfinance loans tend to be higher than that of traditional loans because of multiple reasons. Lending smaller amounts is expensive, and the fact that most applicants reside in areas that increase the operational costs, thus making them costlier than traditional loans.
No, micro loans are collateral free, and you don’t need to pledge any assets to apply for them.
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