A significant proportion of the Indian population doesn’t have access to authorised credit facilities. Lack of financial service providers in small towns, no stable income source, no collateral to offer, no credit history, etc. are all contributing factors. This is where microfinance companies come into play. When banks and other financial institutions don’t approve loans, a microfinance company might help.
Microfinance companies target individuals who don’t have access to traditional banking channels and lend very small loans (micro loans, hence the term, microfinance) to them. Most microfinance companies aim to elevate the economically weaker section of the society by enabling them to undertake economic activities, increase savings, and promote self-empowerment.
In India, loans under Rs.1,00,000 are offered by microfinance companies. Apart from giving such individuals credit, microfinance companies also extend a number of facilities to them like saving accounts, fund transfers, microinsurance, etc. (Note that microinsurance is not limited to only microfinance companies).
In recent years, microfinance companies have gained significant popularity for their noteworthy contributions. Following are the leading microfinance companies in India:
1. Equitas Small Finance Bank: This pioneer institution is the first among the lot to be granted a banking license by RBI. Incorporated in 2016 to take financial services to reach the underprivileged section of our economy, Equitas Small Finance Bank has over 400 branches in India.
2. ESAF Small Finance Bank: ESAF was established as an NGO in 1992 and received a banking license in 2017. Its services include Cash Credit facility, Mobile Phone Loans, Medical Insurance, Crop Insurance, Marksheet Loans, Small Business Loan, ATMs, Debit Cards, Safe Deposit Lockers, etc.
3. Fusion Microfinance Private Limited: The company’s microfinance credit portfolio of over 1.3 billion as of February 2022 continues to scale exponentially. The company is an NBFC by Constitution and is known for its presence in rural and semi-urban regions.
4. Annapurna Finance Private Limited: Founded in 2009, the NBFC has already served over 50,000 customers. Its objective is to empower women to a self-reliant lifestyle, and the NBFC extends zero collateral loans to women borrowers in rural areas.
5. BSS Microfinance Limited: The company currently serves as a commercial correspondent for Kotak Mahindra Bank. Currently available in Maharashtra, Karnataka, Tamil Nadu, and Madhya Pradesh, the company gives out loans to women from economically weaker sections of society.
Note: the interest rates are subject to revisions; thus, visit the official website of the lender to know the prevailing rates.
Here is a list of benefits of microfinance companies:
A microfinance company in India works in the following manner:
Microfinance is still a relatively new concept in India. Even though it’s early days for microfinance in India, the industry is already very competitive. Several banks with access to low-cost credit have established their microfinance branches and there are also NBFCs and private institutions engaged in the business. The reason behind so many participants in the microfinance space is the straightforward business model with huge scope as far as the target audience is concerned. For borrowers, it’s a welcome opportunity that bridges the gap between them and the banking channels and provides them easier access to sources of finance.
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Ans: There is no good or bad lender. As a borrower, your default choice should be the microfinance company that offers you credit at the cheapest interest rates and lowest incidental charges like processing and documentation fees.
Ans: While banks ask for collateral, stable income proof, and personal guarantees before advancing loans, microfinance companies offer small loans without such requirements on the borrower’s part.
Ans: While the core business of microfinance companies is to lend small loans, they also provide micro saving accounts and microinsurance to their audience.
Ans: Microfinance companies are lending to potentially risky borrowers, and the chances of their assets turning bad are significant. Thus to offset the risk born by them, they charge high-interest rates.
Ans: Unfortunately, there is no uniform regulation that binds all the microfinance institutions. However, NBFCs that account for about 85% of the microfinance in India are regulated by the RBI.
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
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