What is micro finance?
The solution to this issue is Microfinance. Microfinance offers financial aid to individuals who are not able to get access to loans from various banks. Micro finance institutions offer financial services like loans, insurance, savings, money transfers etc to the low-income group of the society. Micro finance provides structured loans to small business owners to start their own business. Majority of Microfinance loans are offered to woman, unemployed and people with disabilities
Microfinance sector serves as a medium through which the Government can achieve its goal of financial inclusion in the country.
Why avail micro finance loans?
- Microfinance facility is given to people from low-income backgrounds
- Microfinance loans are usually of small amounts
- There are also microfinance facilities in urban areas for shopkeepers, street vendors, and other small-scale businesses
- Loans are provided for a short period
- Microfinance loans do not need any collateral
- Commercial Banks
- PSU Banks
- Credit Unions
- Non-governmental Organisation (NGO)
Please note that the interest rates charged for microfinance loans are high as compared to traditional bank loans. Interest rates vary depending on the loan purpose and borrower history.
Drawbacks of microfinance:
- Woman are major borrows of microfinance around the world
- Indian microfinance industry has been growing at a very fast rate as compared to other developing nations like Bangladesh, Vietnam and Peru.
- Microfinance loans have the highest repayment rate.
- Tamil Nadu is one of the biggest markets for microfinance in India