Microfinance for the poor to start a business
Micro
credit is one of the tools for poverty alleviation.
The provision of small loans by NGOs/ Microfinance institutions [MFIs] / NBFCs, etc., helps the lives of its borrowers, in improving their employment and income levels, nutrition, education, health. While it is widely acknowledged that microcredit is only one of the developmental interventions, and not certainly, the only one, to enable the poor to access sustainable livelihood options, this study has shown that credit is a very important component for enabling the poor to improve the quality of their lives.
The uses of money can be many, and are best decided by the user:
1. Investing in the primary business/livelihood of the
family;
2. Investing in any other business the client or
another family member owns;
3. Spending on family expenses [education, medical
needs, house repair, marriage, purchase of provisions, or any other needs which
need to be fulfilled to enable the member to have a normal life];
4. Paying off moneylenders.
Microfinance is the provision of small amounts of
money [maximum of Rs.50000/- to one individual] with an aim to improve the
quality of lives of its borrowers.
However, client livelihoods and the communities in
which they live are complex. Poor people have multiple income sources. Money is
fungible and not necessarily used for the purpose for which it was requested,
or stated to have been used. However, the aim of microfinance is not a purpose-specific loan, but a loan for the poor, when they need it.
Who are eligible for the Microfinance?
Microfinance is rarely given to individuals, it is
generally given to groups of women. A group could be a SHG [self-help
group] or a JLG [ joint liability group], depending on the methodology of the
lender. Being a member of a Sangha (group), and having savings habit has other
indirect impacts:
1. Borrowings have been used for investment;
2. Most members send their children to school;
3. Additional livelihoods generated, especially
off-farm activities to supplement family income [diversified income];
4. Emergency credit needs met out of Group Fund, less
dependency on moneylenders/chit funds;
5. Increased awareness levels [about money rotation,
health and hygiene] ;
6. Almost all the borrowers used the credit for
creation of asset [household assets, or income-generating assets], from the
second loan cycle.
If an MFI applies for a bank loan, the basic details
required to be furnished would be as under:-
Background CheckList
§ When did the organization start;
§ Names and background of the main promoters of the
organization;
§ Which lender gave financial assistance to the
organization;
§ How has the organization grown over the years?
§ What are the innovative products launched by an organization like insurance, savings, etc.
§ Presently, what is the status of :
§ Total Membership:
§ Active borrower base :
§ Total Loans disbursed :
§ Total repayments received :
§ Total Outstanding portfolio :
§ Repayment Rate :
§ Portfolio at Risk (more than 60 days) :
§ What is the Vision Statement of the MFI :
§ Where does the organization want to go in the next three
years?
§ What is the outreach it is planning [number of
borrowers, branches, area of operations, etc.], ie, Geographic coverage (Please
list the districts and the states in which you are operating.
§ How is the organization gearing up in terms of
raising funds, manpower planning, etc. to achieve the projected growth in next
three years?
Methodology being
followed by the MFI:
§ How does the organization form the groups (SHGs /
JLGs);
§ What is the group size;
§ How the groups are arranged in a center;
§ How many centers typically come under a branch etc.?
§ What is the training imparted to the clients before
they start borrowing from the organization;
§ How is the monitoring done.
One needs to also mention the current staff
strength, the process of recruitment of staff, incentive structure to staff,
training plans, etc.
F.A. Q
What is the significance of microfinance?
The most extreme Importance of microfinance in India is that it administers the admittance to the money to little business people. As it has been examined over that microfinance in India is giving credits, protection, admittance to investment accounts. The idea of microfinance centers around ladies additionally by giving them advances.
What is an illustration of microfinance?
These credits are commonly given to back business visionaries who run miniature undertakings in non-industrial nations. Instances of miniature ventures incorporate bushel making, sewing, road distributing, and raising poultry. ... Miniature Insurance: Individuals living in agricultural countries have more dangers and vulnerabilities in their lives.
Who are the microfinance customers?
Microfinance alludes to monetary administrations – most generally advances, reserve funds, and protection – conveyed in little divisions to helpless customers who do not have the guarantee, record as a consumer, or different resources to entering the formal monetary framework.
Here are Challenges looked at by Microfinance Institutions
- Over-Indebtedness.
- Higher Interest Rates in Comparison to Mainstream Banks.
- Far and wide Dependence on the Indian Banking System.
- Insufficient Investment Validation.
- Absence of Enough Awareness of Financial Services in the Economy.
- Administrative Issues.
- The decision of Appropriate Model.
HOW TO FIND ANGEL INVESTORS
There are nearly 3000 MFI in India.
Following are the top 10 Microfinance companies in India:
- SKS Microfinance Ltd (SKSMPL)
- Spandana Sphoorty Financial Ltd (SSFL)
- Share Microfin Limited (SML)
- Asmitha Microfin Ltd (AML)
- Shri Kshetra Dharmasthala Rural Development Project (SKDRDP)
- Bhartiya Samruddhi Finance Limited (BSFL)
- Bandhan
- Cashpor Micro Credit (CMC)
- Grama Vidiyal Micro Finance Pvt Ltd (GVMFL
- Grameen Financial Services Pvt Ltd (GFSPL)
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