More than 30 crore+ Indians, especially in rural and semi-urban areas, struggle to access traditional banking loans due to lack of documents, credit history, or collateral.
This is where microfinance steps in.
Microfinance provides small, low-interest loans to individuals who need financial support for income-generation, business expansion, emergency needs, or livelihood stability.
Let’s understand microfinance in a simple, practical way.
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What is Microfinance? How does it work?
Microfinance is a financial system that provides small loans, savings, and credit services to low-income individuals who cannot get loans from regular banks. It works through microfinance institutions (MFIs), self-help groups (SHGs), and joint liability groups (JLGs). Borrowers take small loans—usually without collateral—and repay in weekly or monthly installments.
What is Microfinance? (Simple Definition)
Microfinance refers to financial services such as:
Micro-loans (small loans)
Savings accounts
Insurance
Credit facilities
designed for low-income borrowers, small business owners, and women entrepreneurs.
Loan amounts usually range from:
👉 ₹10,000 to ₹2,00,000
with flexible tenure & group-based repayment.
How Does Microfinance Work?
Microfinance works through a structured yet simple lending model:
1. Borrowers Are Grouped (SHG / JLG Model)
Borrowers form:
Self-Help Groups (SHGs)
Joint Liability Groups (JLGs)
Group members guarantee each other’s loans — which reduces default risk.
2. Loan Application Without Heavy Documents
Most MFIs require:
Aadhaar
PAN
Basic address proof
Group verification
Income assessment
👉 No collateral required.
3. Loan Amount Released
Loan amounts are usually:
₹10,000–₹50,000 for first cycle
Higher amounts for repeat cycles
Use cases:
Starting a small business
Buying livestock
Inventory purchase
Tailoring, beauty, food, handicraft setup
Emergency medical needs
4. Weekly or Monthly Repayment
Microfinance loans typically involve:
Weekly meetings
Monthly installments
Group-based repayment monitoring
5. Borrower Gets Larger Loans Over Time
If repayment is timely, borrowers progress to:
Higher ticket loans
Business loans
Microenterprise loans
Types of Microfinance Loans
| Type | Meaning |
|---|---|
| Microcredit Loan | Small loan for business/livelihood |
| Microenterprise Loan | Higher-amount loan for small businesses |
| SHG Loan | Loan given to Self-Help Groups |
| JLG Loan | Joint liability loans to small groups |
| Livelihood Loan | Loans for farming, livestock, daily work |
| Women Entrepreneurship Loan | Special schemes for women |
Who Provides Microfinance in India?
✔ NBFC-MFIs (Microfinance Institutions)
Most microfinance lending happens through NBFC-MFIs.
✔ Banks
Banks lend directly or through SHGs.
✔ SIDBI & Small Finance Banks
Offer micro and small business loans.
✔ NGOs & Cooperative Societies
✔ Government Schemes
Like NRLM, MUDRA, PMRY, and SHG-bank linkage programs.
Benefits of Microfinance
✔ Financial access for poor & underserved
✔ No collateral required
✔ Helps women become financially independent
✔ Promotes small business growth
✔ Encourages savings culture
✔ Low default rates due to group responsibility
✔ Helps rural economic development
Challenges of Microfinance
❌ High interest rates compared to banks
❌ Over-borrowing in some regions
❌ Multiple MFIs lending to same borrower
❌ Dependence on group repayment pressure
Microfinance Example in Real Life
Example:
Rani, a tailor from a village, joins a 10-member SHG.
She gets a ₹20,000 micro-loan to buy a sewing machine.
She repays weekly installments of ₹500.
After 12 months of good repayment, she becomes eligible for a ₹50,000 enterprise loan.
This is how microfinance builds financial independence.
Microfinance vs Traditional Loans — Key Differences
| Feature | Microfinance | Bank Loan |
|---|---|---|
| Documents | Minimal | Heavy documentation |
| Collateral | Not needed | Often required |
| Loan Size | Small | Medium to large |
| Approval Time | Fast | Slow |
| Target Group | Low-income borrowers | Salaried & business profiles |
How Vizzve Financial Helps Borrowers
While microfinance is great for small-ticket needs, many individuals later need:
✔ Personal loans
✔ Small business loans
✔ Salary-based loans
✔ Low-documentation NBFC loans
Vizzve Financial helps such borrowers move from micro-loans to bigger, formal finance options.
👉 Apply at www.vizzve.com
Frequently Asked Questions
1. What is microfinance?
Small financial services for low-income individuals.
2. Is microfinance same as microcredit?
Microcredit refers specifically to loans; microfinance includes savings & insurance.
3. Do microfinance loans need collateral?
No.
4. What is the loan amount?
₹10,000 to ₹2,00,000 depending on cycle.
5. Who is eligible?
Low-income individuals, women, SHGs, small entrepreneurs.
6. How do I join an SHG?
Through local NGOs, state missions, or village groups.
7. Are interest rates high?
Higher than banks but lower than informal lenders.
8. Do MFIs check CIBIL?
Basic soft checks yes, but low score is acceptable.
9. How quickly is loan disbursed?
Within days.
10. Can women get microfinance loans easily?
Yes, 80% MF loans are given to women.
11. What can microfinance loans be used for?
Business, farming, education, healthcare.
12. How do repayments work?
Weekly or monthly via group meetings.
13. What is a JLG?
Joint Liability Group — a group of borrowers whose loans are interconnected.
14. How does microfinance reduce poverty?
By enabling income-generating activities.
15. Does Vizzve Financial offer microfinance?
Vizzve helps with larger NBFC loans once the borrower upgrades.
Conclusion
Microfinance is a powerful financial tool that empowers low-income individuals, especially women, with access to credit and livelihood opportunities. It works through SHGs, JLGs, and MFIs that provide small, collateral-free loans with flexible repayment.
If you need a larger, quick personal loan beyond microfinance:
👉 Apply via Vizzve Financial — www.vizzve.com
Published on : 1st December
Published by : SMITA
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