Start your growth with Microfinance

Banking services have made several inroads throughout the world. Today, most of the people living in some of the most remote villages have access to a savings account. However, there is still a fair number of people who are deprived of opportunities because of a lack of banks willing to issue loans to them. This is a major stumbling block and this is where Microfinance in India steps in.

For those who don’t know MFIs have long been bringing about changes within the rural landscape. The most notable example of this is Bihar. what started with a single Microfinance company in Bihar has since bloomed into a flourishing business opportunity for MFIs themselves. Today, Bihar has the most number of operational MFIs within India.

However, not all is roses and sunshine when it comes to microfinance companies. While Bihar is seen as a success story, almost every single Microfinance Company in Odisha is seen as a failure. Several reasons can be attributed to Bihar’s success. However, a similar number of reasons can also be attributed to its failure in Odisha.

With that being said, let us take a look at what an MFI does. To put it simply, it disburses small amounts of loans to people applying for them under various schemes. As per current RBI guidelines, they look something like this -

• Rural - Rs 1.25 lakh per annum from Rs 1 lakh.
• Semi-urban and urban households-  Rs 2 lakh from Rs 1.6 lakh.

With that being said, what makes MFIs such an attractive prospect? Well, MFIs can be broadly termed as a consumer-friendly institution. The loans they disburse go a long way in helping their customers which in turn lands them more customers. So, their business model can effectively be termed as a low cost, long term model.

Plus, as the business endeavor of the customer grows, so does their need for investment and this in turn often nets them recurring customers. Now, while the customer base is being expanded, it doesn’t mean that the other aspects of the MFI are left to flounder about. Despite the low cost and return on operations, the quality and precision of finance are still top-notch while maintaining every relevant security protocol.

All of this goes a long way in helping self-employed professionals and entrepreneurs to sustain themselves and the communities around them while paying back their loans. Otherwise, in case these MFIs engage in predatory practices, all of these delicate ecosystems will collapse and hamper the growth of the MFI itself.

With that being said, the loans acquired from these MFIs are used for a variety of different purposes. These can range from setting up educational institutions to getting an education for the loanee themself. MFIs also provide a whole host of other services as well such as savings accounts, insurance, etc. All of these services help the clients during tough situations where their business or livelihoods might be in danger.

Microfinance has also been used to reduce poverty however, so far, the results have been mixed. This is mainly because a lot of times, people are either unable to make the repayments or are simply unwilling to do so. In rural areas, this often results in violence between the two parties and there have been several documented instances of this.

Violence should never be used because it is detrimental to all the parties involved. It often hampers progress as a whole and reduces the credibility of everyone involved. However, other models such as houses being torn down, etc. should also be similarly discouraged due to the net loss for all parties involved. But then, the question arises on how to ensure repayment?

Well, that is a question for another day. For now, let us focus on the good that MFIs have been doing for low-income households and how they are the way to grow if you are looking for immediate and moderate success.

About This Author

Rahul Arora Joined: September 27th, 2020