subject: Microfinance Services In India [print this page] Microfinance can be defined as the financial services that are provided for people belonging to low income group (poor people). Practically, this term is used for referring towards the financial services provided by MFIs or microfinance institutions. MFIs perform the function of lending out very small amount of money (loans) to financially weak, poor and unsalaried people who need to borrow money. The MFIs lend out money to these borrowers without charging any collateral. If the collateral is taken from the borrowers, its almost negligible. Microfinance has gained huge popularity in the last thirty years with a lot of MFIs being established all over the country which help the poor and at the same time earn some profit for themselves.
Microfinance uses a lot of methods to insure a profitable existence. These methods include group loaning and responsibility, progressive increase of loan sizes and an inherent assurance of future loan access if the current loans are duly paid. The main motive of microfinance is to create a world in which even the poorest person has lasting access to financial services of the most supreme quality .The financial services provided by MFIs aim towards providing the low income people with protection against risks , asset building and stabilized consumption facilities. These services include money transfer, insurance, saving and credit .Microfinance and microcredit are synonymous terms and both refer towards financial products and services that are targeted towards low income or poor people.
The clients of MFIs include poor people like farmers, street vendors, labors etc. These clients are mostly home based small scale entrepreneurs and they are self employed. The microenterprise of the MFIs consist of artisanal manufacture, street vending, service provision and small scale retail shops. The majority of the MFI clients are women but destitute are usually not preferred clients in MFIs as they have no source of cash flow and therefore have no way of repaying back the microfinance loans. The loans that these clients take from MFIs are usually used for taking care of the daily household needs of the clients and their families. Less than 50% of the loaned amount is used for establishing or financing microenterprises by the MFI clients. Most of the Institutions serving as MFIs are NGOs, postal saving banks, developments that are state owned, financial cooperatives and credit unions. Microfinance is a boon for poor people as it helps then financially in emergency situations and brings stability and certainty in their lives.
