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What is Microfinance?

Micro finance is a banking service that gives opportunity to low income individuals/Unemployed to become self dependant. Read more about the topic to prepare general awareness section of bank exams.

Mar 1, 2016 17:33 IST
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Micro finance is a banking service that gives opportunity to low income individuals/Unemployed to become self dependant by providing those means to save money, borrowing money and insurance. It is a way to promote employment, economic development with the help of micro businesses & micro entrepreneurs.

Micro finance offers many opportunities to the non-profit sector but also comes with some qualities that make it a unique form of philanthropy. For delivering financial services to the clients, there are mainly two mechanisms: -

i. Relationship based banking
ii. Group based models –where a group of individuals apply for loans or other financial services.

Under Micro financing, there are basically following products: -

i. Income generation Loan (IGL):- the purpose of this loan is to generate income & assets.
ii. Mid-term loan: - It is same as IGL and available at the middle of IGL.
iii. Emergency Loan:- Its purpose is to deal with all emergencies such as health, funerals etc.
iv. Individual Loan: - It also focuses on asset & income generation.

Apart from that, there are some restrictions regarding the usage of money:-

  • Payments of other loans or other debts.
  • Production of tobacco and liquor.
  • Forming turnover capital of trade and intermediary business.
  • for gambling or entertainment services for the population

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