In India, all loans that are below Rs.1 lakh can be considered microloans. Microloans are short-term loans with smaller loan amounts that can be availed by self-employed, startups, micro-enterprises, small businesses, and individuals with low capital requirements. Microfinance institutions provide small loans to people who do not have any access to banking facilities. In India, all loans that are below Rs.1 lakh can be considered microloans.
RBI has initiated reaching out to the unbanked and underbanked people to provide the funding, in partnerships with private limited companies and Micro Finance Companies (MFIs). NGOs are considered to be the most common micro lenders after MFIs and private limited companies.
It provides individuals and small businesses an option for securing finance where traditional forms of finance aren’t available. Microloans are majorly availed by a self-employed, sole proprietorship, small retailers, traders and manufacturers, startups, consultants, women entrepreneurs, unemployed people, workers with minimum wages, minorities, etc.
What are the Purpose of Microloans?
Microloans can be used for various business-related activities, such as meeting working capital requirements, maintaining cash flow, starting a new business, managing day-to-day expenses, paying salaries to staff, debt consolidation, etc. People facing trouble in availing of business loans generally consider microloans. This instills a sense of financial stability so that their aspiration of the creation of assets and protection against risk is fulfilled.
Microfinance institutions have been gaining popularity in recent years. The primary goals of microfinance institutions are the following:
- Transform into a financial institution that assists in the development of sustainable communities.
- Help in the provision of resources that offer support to the lower sections of the society.
- Special focus on women in this regard, as they have emerged successful in setting up income generation enterprises.
- Evaluate the options available to help eradicate poverty at a faster rate.
- Mobilise self-employment opportunities for the underprivileged.
- Empowering rural people by training them in simple skills so that they are capable of setting up income generation businesses.
What are the key benefits of Micro Business Loan?
The part that microfinance plays in economic development is noteworthy. Some of the key benefits of MFIs include the following:
- It enables people to expand their present opportunities – The income accumulation of poor households has improved due to the presence of microfinance institutions that offer funds for their businesses.
- It provides easy access to credit – Microfinance opportunities provide people credit when it is needed the most. Banks do not usually offer small loans to customers; MFIs providing microloans bridge this gap.
- It makes future investments possible– Microfinance makes more money available to the poor sections of the economy. MFIs also provide them with credit for constructing better houses, improving their healthcare facilities, and exploring better business opportunities.
- It serves the under-financed section of the society – These financing options help people take control of their lives through the betterment of their living conditions.
- It helps in the generation of employment opportunities – Microfinance institutions help create jobs in the impoverished communities.
- It inculcates the discipline of saving – When the basic needs of people are met, they are more inclined to start saving for the future. It is good for people living in backward areas to inculcate the habit of saving.
- It brings about significant economic gains – This eventually leads to the growth of the community in terms of economic value.
- It results in better credit management practices – Apart from providing empowerment, microloans also have better repayment rates as women pose a lesser risk to borrowers. This improves the credit management practices of the community.
- It results in better education – Improvement in the family finances implies that children may not be pulled out of school for monetary reasons.
Popular Microloans providers in India
- Bandhan Bank
- BSS Microfinance
- Annapurna Microfinance
- SKS Microfinance
- Equitas Small Finance Bank
- Ujjivan Small Finance Bank
How to apply for Micro Business Loan?
To avail of microloans, visit the official website of the desired MFI and fill in the loan application form and submit all the required documents. After the form submission, MFI’s representative will contact the applicant and shall proceed with the loan formalities. Once the MFI is convinced with all the submitted documents, shall disburse the loan in the applicant’s bank account.
However, if the applicant has already tried business loans from private and public banks or NBFCs then surely can opt for MFIs. Generally, applicants with very low credit scores or no financial history apply for microloans.