While the fortunate ones plan for their financial independence, there are these unfortunate ones, who struggle to meet their ends daily, for whom the boon in the name of Microfinance is available. Whatever might be the reason for this state of these deprived individuals, be it the unemployment or the low-income, the relief in the name of Microfinance is certainly possible when they approach the relevant financial institutions, of course, with the dream to make it possible in this competitive world. So, what is this Microfinance? Let’s keep reading!
What is Microfinance?
Microfinance is the suitable financial assistance offered to the low-income individuals, who cannot otherwise avail assistance from the traditional financial institutions due to their monetary position, to help them realize their dreams and as well as to improvise their financial situation. But, not every financial institution, public or private, is eligible to offer such loan assistance. There are dedicated Microfinance institutions, which might include non-profit organizations and larger banks, that aim at improving the financial needs of the deserving low-income individuals and, it is one of these institutions the needed individuals have to approach to brighten their lives and as well as their financial position.
But, Microfinance is not limited to the loans, it can be the savings or the insurance options, depending upon the preferences or the expectations of the respective individuals. Yes, while a certain individual might be in need of some money to start their business, other might be in need of an eligible deposit account to make plans for his/her financial future and it is for this reason the Microfinance options are varied. Typical Microfinance reasons are to start a business, joining an education program, Health insurance, insurance against death and so on.
In the case of Microloans, the amount offered in the name of assistance is typically lower than the ones offered in the conventional financial institutions because these aids are offered to people, who typically have nil to very little money to their credit and therefore, offering higher amount proves meaningless, as repayment becomes impossible. Also, unlike the typical financial loans, here, no collateral is expected and therefore, the loan idea is generally, based on pooling a group of interested borrowers together so that, in the case of any default action by an individual borrower, the others can act as the buffer. But, there are also individual lending options offered only to capable candidates meeting certain criteria.
Since the risks undertaken by the respective Microfinance institution are higher, obviously, the interest rates are higher but, anytime repayable by a responsible lender! This concept was popularized by Muhammad Yunus of Bangladesh, for which he and his Grameen Bank received Nobel Prize in the year 2006!