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What is Microfinance and its Importance

The Reserve Bank of India uses different tools to control the money supply in the Indian economy. Among other tools of its monetary policy, namely repo and reverse repo rate, marginal standing facility, or MSF rate is another one that allows the apex bank of this country to manage the market's liquidity.

What is MSF ?

Microfinance, also popularly known as microcredit, is a kind of banking service extended by banks and non-banking financial companies (NBFCs) to people with low or no income. Lenders who provide microfinance services generally extend very low-value loans to such borrowers. The idea behind microfinance is to give disadvantaged people a chance to set up something of their own or use the money to build up a regular source of income.

Closely related to the idea of microfinance is the idea of microcredit. Microcredit, also known as a microloan or microlending, is a type of microfinance. It refers to a very low sum loan extended by banks and NBFCs to the unemployed or people in the low-income groups. The concept of microcredit was developed by Muhammad Yunus in Bangladesh in 1976. His plan gives people who live outside of the traditional banking system or do not have access to it, a chance to build up a sustainable source of income and enter the traditional economy.

Types of Microfinancing Options Available in India

Now that we understand the idea of microfinance and microloans, let us look at the types of microfinance available in India.

Microloans

Microloans are low-value loans extended by banks and NBFCs to people in the low-income group. These loans are extended without the security of collateral. Lenders give out these loans because they believe that such a loan would eventually give the borrower a chance to grow their income and become ready for a traditional loan in the future.

Microsavings

Microsavings are not loans but accounts with no minimum balance. Banks and NBFCs open these accounts to help potential and future borrowers develop an understanding of the banking or borrowing system as well as inculcate financial discipline in borrowers.

Microinsurance

Micro-insurances are low-value coverages provided to people taking microloans. A microinsurance has a very low premium.

How Can You Use Microfinance?

Microloans are given by banks and NBFCs to help individuals grow financially. Here are a few ways in which a microloan can come handy:

  • Use a microloan to buy machinery or equipment that you know will help you increase your income.
  • You can also use the money to set up a manufacturing unit or renovate an existing one.
  • You can also use it to meet training costs or buy a new space for business operations.

Microloans have become a popular way of arranging money for small operations in India. However, if you need bigger funds, you can easily arrange a high-value loan if you are the rightful owner of a property. Bajaj Housing Finance extends loans against property of a value of Rs.5 Crore* or more, basis eligibility, for a period extending up to 18 years. So, if you need funds immediately, apply with us today.