Benefits of Micro Finance Business in India

Narendra Kumar

05 Jun, 2019

Micro Finance business is sound & positive in India. It has its roots outgrown in India for a long time. It is a type of NBFC which disburses short-term loans in lesser quantities. It has a repayment rate of doing 99.5% of payments.

It is generally disbursed in small quantities too small entrepreneurs to create a business. They are generally ought to give benefit to agriculture & other rural activities. Also, it is generally backed by a mortgage. Like any other regular commercial bank, microfinance institutions will use these interest rates to cover most of their costs and losses and aim for an increase in their own funds. In this sense, only viable MFIs are able to provide permanent access to Micro Finance Business services to the hundreds of millions of people in need.

It is registered under section 8 of Companies Act, 2013 which serves the socio-economic objective of society.

What are the Key Benefits of Micro Finance Business?

• Better Loan repayment rates.
• Extending education & empowered
• Easy Access & reach
• Long-term sustainability
• Improved quality of health & living
• Socio-economic welfare
• Job Creation significantly

What is the Basic Structure?

Micro-finance companies are a type of NBFC (Non-Banking Finance Company) which are given NBFC-MFI (Micro Finance Institution) license by RBI.

• NBFC-MFIs are required to have a minimum paid up capital of Rs.5 Cr
• They are permitted to provide unsecured loans to Self Help Groups (SHGs) or Joint Liability Groups (JLGs) as per the guidelines of RBI.
• These MFIs borrow funds from Banks and lend to low-income households based on the group lending method.
• These loans are classified as Priority Sector Loans in the books of the lending bank.
• Microfinance is not the tool for eradicating poverty, it affords the poor a way of getting access to funds without having to sell their soul.
• They cannot accept public deposits & draw cheques or form a part of the payment system.
• It is very critical to develop a rural economy, especially

What are the Requirements for Loan?

• Lifecycle Needs: Weddings, Funerals, Childbirth, Education, Home Building, Widowhood and Old Age.
• Personal Emergencies: such as Sickness, Injury, Unemployment, Theft, Harassment or Death.
• Disasters/Mishaps: such as Fires, Floods, Cyclones and Man-made events like war or bulldozing of dwellings.
• Investment Opportunities: Expanding a business, Buying land or equipment, Renovation of the house, securing a job, etc.

How to Define?

It defines itself as providing financial assistance to an individual or a client either directly through a group mechanism

• Amount not exceeding 50000 in aggregate per individual for agricultural activities.
• Amount not exceeding 150000in aggregate per individual for housing purposes.
• Such other amount as may be prescribed.

Legal Structure?

It forms an organization or an association of individuals established for the purpose of carrying on the business of extending microfinance services:

• Society registration under Societies Registration Act, 1860
• Trust Registration under Indian Trusts Act, 1880/Public Trust
• A co-operative society or a multistate co-operative society under the relevant Act.
• Section 8 Company under Companies Act, 2013.