What are the Advantages of Micro Financing for Indian Entrepreneurs?

Posted by Reliance Commercial Finance on January 12th, 2017

In a developing country like India, it is essential to make the poor and near poor sections of the society self-reliant. In order to do so, the Government has to take initiatives to ensure that proper financing is able to reach these sections of the society. These loans and finances need to be used exclusively to ensure the financial stability and growth of small scale industries.

A Case Study of Micro Financing

Take for instance the condition of the weavers in Orissa. A weaver has to put in a lot of hard work and the cost of materials is also quite high. Most weavers earn a meager amount. However, with proper micro financing and low-interest loans the weavers in Orissa have been able to come out of the clutches of the local money lenders and become self-sustaining. Moreover, their income has also increased significantly. Thus, more and more companies and non-governmental organizations are encouraging micro financing in India, which is lucrative not only for the entrepreneur acquiring the loan but also for the financial institution providing the loan. With efficient micro-financing, the weaker sections of society can get a boost to improve their lifestyles.

Advantages of Micro Financing

According to most economists, micro financing has many benefits especially for a country like India. Developing nations need to ensure the growth of the financially weaker sections of society by providing them opportunities for self-employment. In this regard some of the benefits of micro financing are as follows:

Lower Interest Rates: As the loans taken by the near poor entrepreneurs are smaller in amount, the financial institutions offering these loans are able to reduce the interest rates. As the interest rates are lower the chances of recovering the loan increases, thereby making it a profitable proposition for both parties.

Loan Write-offs: Sometimes financial institutions offering micro loans can ask the RBI for loan write-offs in case the financial institutions are unable to recover the loan amounts. This ensures that the financial institution or the bank offering the small business loans in India does not suffer huge losses.

Development of the Region: Micro-financing and micro-enterprise have to go hand in hand. Just as the financial institution is dependent on the entrepreneur, similarly the development of the particular small scale industry will aid in the overall development of the region. As this entire series of financial activities are interconnected, proper micro financing can also work as a developmental activity.  

However, it would be wrong to consider micro financing as a social activity. All financial institutions offering micro finance will be concerned about the recovery of the loan amount. Nevertheless, the nature of this economic activity is such that it is bound to have a social impact. Thus, for a developing country like India, micro financing is definitely a boon for the financially weaker sections of society looking for ways to become self-reliant and for the development of small scale industries.