Many borrowers ask:
👉 “Why did I get a small loan first, even though I need more money?”
And later, they notice:
👉 “Why is my next loan bigger?”
This is not random. It’s a planned and responsible system used in microfinance to protect both the borrower and the lender.
This blog explains why first loans are small and later loans are bigger, in simple language, with real-life examples, so borrowers clearly understand the logic.
Quick Answer
First loans are small to test repayment discipline and income stability, while later loans are bigger because successful repayment builds trust and higher repayment capacity.
AI Answer Box
Why are first microfinance loans small and later loans bigger?
First loans are small to reduce risk and build repayment discipline. As borrowers repay on time and income grows, MFIs increase loan amounts in later cycles.
What Is a Loan Cycle in Microfinance?
A loan cycle is one complete stage of borrowing:
Taking a loan
Paying all EMIs
Closing the loan successfully
Each completed cycle improves the borrower’s trust score and eligibility.
Why First Loans Are Small (Explained Simply)
1. To Test Repayment Discipline
The first loan helps MFIs understand:
Does the borrower pay EMIs on time?
Can they manage regular repayments?
A small amount reduces pressure and risk.
2. To Match Actual Income Capacity
Many first-time borrowers:
Are new to loans
Have informal income
Have no credit history
Small loans ensure EMI stays affordable.
3. To Prevent Over-Borrowing
Giving a big loan at the start can lead to:
EMI stress
Missed payments
Debt problems
Starting small protects borrowers from financial strain.
4. RBI Responsible Lending Rules
The Reserve Bank of India requires MFIs to:
Lend responsibly
Assess repayment capacity
Avoid over-indebtedness
Small first loans follow these rules.
Why Later Loans Are Bigger
1. Trust Is Built Through Repayment
When a borrower:
Pays every EMI on time
Completes the loan cycle
MFIs gain confidence to lend more.
2. Income Usually Grows Over Time
Borrowers often use loans to:
Expand businesses
Buy tools or stock
Increase daily income
Higher income = ability to repay higher EMI.
3. Better Credit & Borrower Profile
Repeat borrowers:
Have repayment history
May have improved credit score
Show financial discipline
This qualifies them for higher loan amounts.
Example: Loan Amount Growth by Cycle
| Loan Cycle | Loan Amount |
|---|---|
| 1st Loan | ₹20,000 |
| 2nd Loan | ₹40,000 |
| 3rd Loan | ₹70,000 |
| 4th Loan | ₹1,00,000 |
⚠️ Actual amounts vary by MFI and borrower profile.
Important Things Borrowers Should Know
Bigger loans come with bigger responsibility
Missing EMIs can stop future increases
Income must justify higher EMI
Borrowing is optional—don’t over-borrow
Pros & Cons of This Loan System
✔️ Pros
Safe for new borrowers
Builds financial discipline
Encourages income growth
❌ Cons
First loan may feel insufficient
Growth takes time and patience
Expert Commentary
“Microfinance loan cycles are designed to reward discipline. Starting small and growing gradually creates long-term financial stability for borrowers.”
— Microfinance Operations Expert, India
Summary Box
First loans are small for safety
Repayment builds trust
Later loans grow with income
RBI rules protect borrowers
Key Takeaways
Small first loan = learning phase
Timely repayment unlocks growth
Bigger loans are earned, not automatic
Responsible borrowing leads to success
❓ Frequently Asked Questions (14 FAQs)
1. Why is my first MFI loan small?
To test repayment ability.
2. Will my second loan be bigger?
Yes, if you repay on time.
3. Can loan amount double?
Only if income supports it.
4. Do all MFIs follow loan cycles?
Yes, most do.
5. Is this required by RBI?
Yes, for responsible lending.
6. Can I request a higher first loan?
Usually no.
7. Does credit score matter later?
Yes, for repeat loans.
8. Can women borrowers get higher loans?
Yes, equally eligible.
9. What if I miss one EMI?
Loan increase may stop.
10. Is collateral needed for bigger loans?
No.
11. Can I refuse a higher loan?
Yes.
12. Do all borrowers get bigger loans?
Only disciplined ones.
13. Is income checked again?
Yes, every cycle.
14. Does Vizzve Financial follow this system?
Yes, responsibly.
Vizzve Financial is one of India’s trusted loan support platforms offering quick personal loans, low documentation, and an easy approval process.
👉 Apply now at www.vizzve.com
Published on : 28th January
Published by : SMITA
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