A better understanding of microfinance

Microfinance is a kind of banking service which is offered to low income or unemployed people who do not have any access to loan or credit. Initially it was started with providing credit to the people; later on, other financial services have been added to microinsurance products, savings accounts, etc. The ultimate goal is to make people from all levels to be self-sufficient.

More about microfinance

It is very much helpful to those people who are trapped in poverty or people who have very fewer resources and could not start any business. Those people will end up taking loans from friends, family and even from loan sharks who generally charge high-interest rates. Microfinance lets people borrow money safely at reasonable interest rates. It is most popular in developing countries.

The microfinance helps in supporting different kinds of activities that range from the start-up of capital to financing educational programs which let people in developing the required skills to be a successful entrepreneur. These programs usually focus on cash flow management, bookkeeping and also technical skills. It is not like typical finance providers who are mainly concerned with people who possess enough collateral to support the loan, however, the microfinance organizations are ready to lend money all the people irrespective of the fact they own any collateral.

Terms of microfinance

Like the other entire financial service provider, microfinance also has to charge interest on all the loans offered. A specific repayment plan is also chalked out with regular intervals for payment due. Few of the institutions need the borrowers to keep aside a nominal amount in their savings accounts which will be used an insurance.

Since the borrowers are not able to offer any collateral, the borrowers are pooled together and formed a group which acts as a buffer. The recipients repay the loan together. The loan is offered to groups. It will also help the borrowers to receive higher loan amount.

Introduction of microfinance has come as a blessing to many people. All the rural areas would be covered under the scheme of microfinance. The services offered are available at their doorstep as the institutions set up a village center in all parts of the country. They don’t have to travel to urban areas and meet up with commercial or mainstream institutions to avail loan services. For the people, it is convenient and easy to approach.