In a country like India, there are a lot of self-employed individuals, and for them, the traditional banking systems were always a closed option as they couldn’t find any help from those institutions.
However, there is a group of women entrepreneurs who are running their little shops or selling their handicraft work. For that, one needs to have some financing option that will make them self-reliant. For that comes the option of microfinance, which helps these individuals with the basic required amount to bring financial stability to their lives.
In this blog, we will address the need for capital in the lower strata of the economy and how microfinance companies can bridge the gap by providing them small tokens of loan amount and repeating the cycle.
Understanding How Microfinance Institutions Work
MFIs are a type of financial institution registered by the central authority. These agencies are proficient in providing micro credits to borrowers and increasing the spread.
In the majority of loans, the loan amount is quite high, and for that, one needs to go through a lot of documentation process and then get the required amount. Since these MFIs specialize in providing small loans, they have started to work with people in the informal sector of the economy.
In the majority of these loans, the person checking the credibility of the person does a field survey, trying to gather as much information as possible from that individual and also from the people who live near that person. By checking all these track records, a person gets the loan to start their small venture and build the habit of paying back, which allows them to apply for more loans.
Role of these MFIs in Women’s Empowerment
One of the most certain parts of these MFIs is that it’s helpful for the women in the Tier-2 and Tier-3 parts of the country, and based on that, they can finance their projects and start to make a livelihood, which becomes beneficial for their kids.
In the majority of the cases, the MFIs try to form a co-operative where they club 10-20 women together, and based on that, all of them get a total loan where each individual can buy their raw materials and start making handicraft products and then sell those together under a same brand name.
One of the benefits of these microfinance institutes is that they take the traditional route of finances to the lower end of the country. Thus, they can avoid falling prey to a loan predator and create a debt cycle for their life.
A person can get credit with lower interest, and these MFIs also help in teaching skills, thus allowing all the different types of candidates to get these loans and build a financial background.
The data shows that the different types of microcredit programs allow women to participate in the economic output, thus allowing more people to engage in economic activities.
How the Loan Disbursal Process Works
The first step in this process might come from the borrower or from the agent who is in the field survey. Here, a company that is in the microfinance credit goes to those economic areas where the credit token requirement is minimal, and a person can use that amount for their livelihood purpose.
The main objective of this kind of loan is not to be used for discretionary purposes; rather, one must find ways through which they can increase their family’s income and, in some aspect, help these individuals to come out from that low-income trap.
Then comes the credibility checking of the borrower, where a microfinance agent or, in this case, a person who has done an NBFC DSA registration can also come to help these lenders as they can find all the information about the borrowers and provide the institute accurately.
After that, the lender disburses the loan amount to the account of the borrower, and then that person can use the amount for their needs and refinance their small business or their handicraft work and repay the loan as per the date and time mentioned in the tenure.
In this manner, a microfinance institute can empower women across regions and bring them under the financial burden.
