How Micro Loans Can Resolve Financial Crunch Of Small Businesses?

Posted by Atul Sharma on March 26th, 2019

Small business owners often find themselves in a state of fix owing to financial hurdles that inhibit their growth and progress. Most banks and financial institutions refrain from sanctioning loans to start up organizations or those with no prior credit record. Moreover, the interest rates on loans are high, thus, prompting people to look for different financial alternatives. Those looking for initial business investments or small loans to further their businesses are gradually turning to institutions synonymous with availing microfinance in India. Most people believe that the concept of microfinance institutions (MFIs) exist in developing countries or third-world nations like India only. However, this is not true.

How Micro Loan Financing By MFIs Helps?

As job opportunities do not commensurate with the growing employment needs, an increasing number of people have realized the need to lend a commercial aspect to their creative instinct, thus, explaining the rising importance of microfinance institutions in India.

Microloans are nothing but short-term loans with a low-interest rate. These loans are typically given to individuals who aim to be self-employed or small-scale businesses looking to ramp up their operations. The trend of lending small amounts has instilled confidence in the borrowers to initiate entrepreneurship, thus, spurring economic growth and financial dependence among people living in developing countries.

The working of microfinance institutions in India is similar to that of banks, though with a different model. As opposed to charging high rates of interests and seeking collaterals in lieu of loans, MFIs grant loans at comparatively much lower rate of interests for prolonged periods.

Dependable Funding Solutions By MFIs

Microloans are now being deemed a reliable solution to the capital needs of small business owners and the ultimate panacea to poverty-stricken countries where banks have failed to look into the financial interests of those living in some of the most remote corners of the country.

Organizations involved in availing microfinance in India lend amounts ranging from a few thousand to a few lakhs of rupees depending on the requirements of the borrower and the feasibility of their projects. However, some MFIs also grant personal loans to impecunious borrowers, for their personal needs too, in underdeveloped communities and countries.

Not all microloans are given by institutions or companies. Some of them are granted by individuals also who realize how inequitable distribution of income has led to widespread poverty. As the pervasive problems of unemployment and penury haunt various sections of the Indian society, the working model of MFIs seems like a novel deviation from the traditional banking concept.