Once you apply for a microcredit loan, you need to understand various types of microfinance. These Cash credit facilities help business people from the poor and backward sections of society to flourish their businesses.
These microfinance loans come without any collateral to the borrowers. Thus, the Microloans help outgrow the smaller loans while preparing the recipient for traditional bank loans.
The micro-savings accounts help the entrepreneurs to operate the savings account without any minimum balance. These accounts help the borrowers to inculcate financial discipline while developing an interest to save for this future.
Microinsurance offers the borrower financial coverage. This insurance comes with lower premiums than any traditional insurance policy.
Half of the population of India may not have any savings account. But they might require financial services to satisfy their current financial needs. Sometimes this section of society needs immediate cash credits to build assets or protect against any risk. Microfinance provides loans at a minimal amount. Also, the tenure period is short for these kinds of loans. Therefore, one can usually repay this loan at higher frequencies. The primary purpose of getting a microfinance loan is to generate the income of the recipient.
Importance of microfinance loan
Microfinance loans are especially for individuals who belong to the underprivileged sections. If the microfinance institutions did not offer cash credit to these underserved segments, then these groups might borrow money from their family members or friends. The probability of such groups looking forward to payday advance and fast cash loans are also relatively high. With the help of microfinance credit loans, these groups are now investing wisely in their business.
Specifically, one can opt for the microfinance loan from the two channels mentioned below:
SHG-Bank linkage programme
It was first initiated in 1992 by NABARD. Under this program, the businesswomen from the financially backward sector can come up together to form a group of 10 members to 15 members. These women as a group can contribute their savings individually to the group at a regular interval. In addition, the financial institution can help the group by offering a loan amount to specific group members. One can use this loan amount for funding any income-generating activities.
The microfinance institutions have their primary operation as microfinance. They offer the loan amount by applying the concept of Joint Liability Group. It is an informal group of 5 to 10 members that seek loans individually or jointly.
One can get microfinance services from various formal institutions, including the rural and cooperative banks. You can also look for other semi-formal institutions. Various non-government organizations also offer microfinance loans. If you need funds on an emergency basis, you can look for various informal sources like small scale lenders or shopkeepers. You can also look for such cash credit from various institutional microfinance companies, which encompasses the services of but semi-formal and formal institutions. This microfinance institutions offer specialized banking services for people from low-income groups.
One can get various microfinance companies that offer great microfinance solutions at an optimum interest rate. Documentation required for such companies is unlimited. Moreover, several financial institutions partner with microfinance institutions to provide such loans to the institutions. In the current scenario, the banks follow a setup for healthy and profitable lending with microfinance institutions. On the side, one can also look forward to two kinds of financing solutions. These are known as microfinance institutions for any lending purpose, and another is the term loans.
Every micro-financing institution offers loan amounts to individuals that help them to grow their business. The bank generally provides it to individuals who belong to the low-income group. In colloquial terms, one can register microcredit as microloan or micro-lending. The concept got built when the skilled people living in the underdeveloped countries lived outside the tradition of monetary and banking institutions wanting entry into the financial economy with the help of small loans. Moreover, the modern micro Credit system first started in the year 1976 in Bangladesh. A group of women started it after borrowing $27 to build up a small business. The group later repaid the loan amount while sustaining their business.