Microfinance is the prerequisite of financial services to low - income clients or solidarity lending groups together with consumers & self - employed, who conventionally lack access to banking & associated services.
Microfinance sector has developed swiftly over the past few decades. Microfinance Institutions in India subsist as Non Governmental Organizations (registered as societies or trusts), Section 25 companies & Non - Banking Financial Companies. Regional Rural Banks (RRBs), commercial Banks, cooperative societies & other big lenders have played a significant role in providing refinance facility to Microfinance institutions. Banks have also leveraged Self Help Group channel to endow with direct credit to the group borrowers.
With financial inclusion rising as a major policy objective in India, Microfinance has engaged centre stage as a promising medium for expanding financial services to unbanked sections of population. Simultaneously, practices followed by various lenders have subjected the sector to better scrutiny & need for stricter regulation.
Salient features of Microfinance
• Loans are of small amount – micro loans
• Loans are usually taken for income generation purpose
• Borrowers belong to the low income group
• Short duration loans
• High frequency of repayment
• Loans are offered without collaterals
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