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Microfinance, also called microcredit, is a type of banking service that is provided to unemployed or low- income individuals or groups who otherwise would have no other access to financial services.
♤ Microfinance institutions (MFIs) are financial institutions working towards the upliftment of the needy and underprivileged section of the society by providing short-term loans to set up their own venture. They take a minimum or very calculated risk and fund the interested borrowers to help them get trained, setup and run a small-scale business.
♤ MFIs operate in a number of forms and shapes in India:
o Joint Liability Groups
o Self Help Groups
o The Grameen Bank Model
o Rural Cooperatives.
♤ The The lending system of the MFIs is completely different from that of the traditional banking sector. In Microfinancing sector, an official gets appointed by the concerned financial institution who can get in touch with the group to discuss the loan application and disbursal procedure.
♤ He/she understands the skills and requirements of the applicant first and then on the basis of that he/she finalizes the amount.
♤ The appointed officer not only understands the business that the borrower is currently conducting or interested to start in future, but he or she also analyses the risk factor associated with it.