Sudhir Sinha
While investigating the causes of poverty, one thing that emerges prominently is lack of employment.
This problem is more in rural areas than in urban areas. Along with the lack of employment in the rural areas, absence of any kind of property or agricultural land is also a problem.
In view of all these problems, microfinance is a means of providing employment to the villagers through loans without any kind of paperwork or security.
Microfinance provides small employment-oriented loans to poor people living in villages or backward areas by going door to door and forming groups of women living in the locality or nearby without any guarantee or mortgage.
The recovery of this loan is done in weekly, fortnightly or monthly installments in the group meeting.
Let us understand what a microfinance loan is and how it works.
Who is a Microfinance Company?
Microfinance companies are companies registered and monitored as ‘Non-Banking Financial Company_ Microfinance Institution’ (NBFC_MFI) by the Reserve Bank of India (RBI).
To register under NBFC-MFI, one must have a net own fund of Rs 10 crore, under which 75% of the total assets should be qualifying assets.
The target group of microfinance loan is the person or family living in backward areas of village or urban area who are unable to go to bank and get loan, microfinance provides this facility to them at their home. Microfinance loans are primarily given to women; several studies have shown that women are efficient financial managers.
Eligibility of Microfinance Loans
All families whose annual income is Rs 3 lakhs or less is eligible to take micro finance loans.
Pattern of microfinance loan distribution
Officials of the microfinance company visit the village or the affected area and select the potential families.
At least 8 women are selected from the area and their KYC documents like ration card, voter ID card etc. are checked. Their credit score is also checked based on the documents provided by them.
Loan recovery
As discussed, microfinance loans are given through groups. Loan recovery is done by organizing a meeting of this group. Generally, the group meeting is organized at the residence of a woman. The place, day and time of the group meeting is decided in advance.
All the women participate in the group meeting and pay their installments. Nowadays, in the era of digital payment, some women also pay their installments through mobile.
Microfinance loan is playing an important role in the efforts of the Government of India to eradicate poverty and provide employment.
SIDBI and NABARD are playing an important role in this effort of microfinance companies. The RBI also keeps a close watch on these companies from time to time through guidelines and monitoring. Crores of families have come above the poverty line through microfinance.
By December 2024, more than Rs 3.91 trillion has been distributed to about 840 million families through 146 million loan accounts. In which the loan amount per woman comes to Rs 53,311.
(The writer is Uttar Pradesh Microfinance Association (UPMA) CEO)