Are you a budding micro-entrepreneur with limited resources? Try Microfinance

“Every decision you make in a business has a financial consequence”- Barbara Vrancik

Do you have a brilliant idea for your business but you are still waiting for your dream investor? Running a startup or a small enterprise without a substantial finance back up can be both painful and tricky. Finance is an inevitable part of any business and to run even small operations, monetary terms play a big role.

There are other means of seeking investments too such as bank but if the setup is small then even banks take a back seat. The entrepreneurs or proprietors fail to show a guarantor or any security to qualify for a bank loan.

Role of Microfinance

With technological and digital advancements, microfinance has also grown over the years. Initially, microfinance was limited to provide a microloan to poor businessman but now it has emerged in terms of services. With Microfinance, a user gets savings, insurance and also the facility of fund transfer. Microfinance is not limited to any vertical but can be implemented in various sectors such as healthcare, apparels etc.

“Microfinance is an idea whose time has come”. –Kofi Annan.

How does microfinance works?

There are several Microfinance institutions (MFI) that borrow monetary funds from big setups or mainstream financers such as banks and lend it to microentrepreneurs. The loan can be low or high as per a business potential. There are more than 1000 MFI that currently operational in India. MFI could be in the form of NGO’s, Non-Banking Financial institutions (NBFC), government sectors and private banks.

Prominent MFI in India

According to the latest report in 2017, Ujjivan financial services were the top MFI in India in terms of geographical locations. The organization operates in 24 states when compared to other players in the market such as Bandhan bank operating in 22 states and SKS operational in 19 states. As per statistics, Indian MFI industry has almost crossed 64,000 crores in the year 2016-17.

Some other key players in the market are Equitas microfinance, Sonata, Asmitha, Arohan etc.

Who can get apply for a Microloan?

The Institutions provide microfinance to sectors and business ideas that immediately generate revenues. Microentrepreneurs such as local vendors, small and medium hotel business, agriculture sector, animal husbandry can apply for a microloan. The borrowers are mostly self-employed with no financial backup.

P2P finance

Peer-to-Peer finance is where borrowers and lenders connect on a common platform without involving any banks as an intermediary. Both lenders and borrowers are benefitted with this model where the one who lends gets better interests than saving account while the ones who borrow will definitely pay less than the interest on a bank loan.

There are many P2P finance websites that are operational for more than a decade. Zopa, a leading website of Britain launched in 2005 has currently 50,000 lenders. Another two websites, Funding circle and rate setter started in 2010, has more than 30,000 lenders active on their website.

Benefits of Microfinance

Thus, there is an estimate from the word bank that 500 million people got a chance to grow through microfinance. 1 out 4 people who applied for the capital were women. This speaks a lot about how microfinance has empowered women. Women entrepreneur with skills but located in small towns and villages can also come up with their ideas and expand through microfinance. More than 130 million people were directly benefitted with microfinance.

“Microfinance is an incredibly powerful tool but we must move beyond micro hopes and micro ambitions for women.”- Gayle Tzemach Lemmon.

Article By:

Sristi Sahu