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Difference between Microcredit and Microfinance

Ashish M. Shaji

| Updated: Aug 29, 2017 | Category: Micro Finance Company, RBI Registration

Microfinance

Microcredit and microfinance are two types of fund related activities. In this article, we shall look at what makes them different. Although they may sound similar but there are certain essential points that make them different from each other. Let’s understand them one by one.

Microcredit

Microcredit
  • Microcredit is the small credit facility provided to the needy people whose earning capacity is very less. The loan is provided to the borrowers who are unemployed, lacking collateral and whose credit history is not sound.
  • The loan is mainly granted to help people earn their livelihood, especially, women who can start their business and become independent.
  • Microcredit not only increases the income level of the poor people but also raises their standard of living and provides the financial assistance to the poor class of people in rural areas to help them become self-employed rather than depending on loan sharks for raising finance who charge inflated interest rates.
  • The best thing about microcredit is that the loan does not require any asset as collateral. The loan is granted for a short period only.

Microfinance

Microfinance
  • Microfinance is a broad spectrum of financial services provided to the people of low-income groups who cannot take bank’s assistance banking and allied services. The service is available to extremely poor people, no matter where they live.
  • The purpose of Microfinance Company Registration is to raise the earnings of low-class people and let them access to deposits and loans. The clients may include women, farmers, and pensioners.
  • Microfinance plays a revolutionary role in any country’s economy. It helps the poor people to fulfil their basic needs and safeguard them from any risks. It raises the per capita income. It encourages women empowerment by providing term economic assistance and hence promotes gender equality.
  • Micro-finance institutions not only provide capital to the startups or small businessman but also deliver such financial services to the poor people who are constantly avoided by the formal financial sector.

Main objective of Microcredit and Microfinance

The main objective of these two is to raise access to financial capital[1] for individuals or companies who don’t have access to traditional financial service.

Access to financial income is beneficial as it enables income generation, enterprises development etc.

What makes Microcredit and Microfinance different?

The Difference between Microcredit and Microfinance are as follows:

Sr. No.MicrocreditMicrofinance
1.Microcredit is the small loan facility provided to the people with less earning, to motivate them to become self-employed.Microfinance refers to the number of financial services provided to the small entrepreneurs and enterprises who cannot take shelter of banks for banking and other services.
2.Microcredit alludes to a small loan provided, at a low-interest rate, to the persons of below poverty line to make them self-employed, i.e., to help the small entrepreneurs start their own business.Microfinance means the broad spectrum of financial services such as loans, insurance, savings, etc. provided to the people of low-income groups.
3.Micro-credit includes credit activitiesMicro-finance includes credit activities and non-credit activities like savings, pension, insurance, etc.
4.Microcredits are small size loans with shorter repayment periods. They are granted for small-scale activities which direct to serve local needs.Microfinance services help low-income individuals and start-up in developing countries to start running a small business, increase assets, diminish risk, raise productivity, increase return on investments, increase incomes, improve access to education and eventually increase the welfare.

Conclusion

Both microfinance and microcredit look to increase access to financial capital for individuals and for those companies that aren’t eligible for traditional financial service. It increases access to financial capital. In case you wish to know more on these two terms, contact Enterslice.

Read our article: IRDAI suggestions to encourage Micro insurance companies

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Ashish M. Shaji

Ashish M. Shaji has done his graduation in law (BA. LLB) from CCS University. He has keen interests in doing extensive research and writing on legal subjects especially on criminal and corporate law. He is a creative thinker and has a great interest in exploring legal subjects.

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