Featured Image Caption: Microfinance
Microfinance is the need of the hour for a developing country like India. It is a way of providing access to credit, insurance, and savings to poor people. Microfinance has taken the shape of the community microfinance movement. Different communities arrange funds through money pooling for those in need of money. It enables the people with a minimum income to raise their standard of living and save for the future.
This post will throw light on the features of community finance and its functionality for the low-income groups:-
Sustainable Features & Principles of Community Microfinance
Community microfinance is considered to be the most sustainable way for uplifting society financially because of its following features:-
Provides Support to the Weakest Section of the Society
The people who take a loan from these schemes generally belong to the lower-income groups. These finances evolve their vision from daily survival to building a bright future for themselves.
Dispenses Short-term loans
The majority of banks and NBFCs provide long-term loans only to earn substantial interest. Microfinance allows the borrower to borrow an emergency loan like a short-term loan while paying less interest.
Gives Micro Loans
There is a lower limit for the amount as well when you want to borrow from a bank. But not everyone needs a larger amount. The microloan provided by community microfinance gives freedom to take a small amount only as a loan.
Doesn’t Require Collaterals
It’s almost impossible for a poor person to provide valued collateral. Therefore they struggle to get a loan or credit. But microfinance doesn’t ask to submit any collateral to give them credit.
Frequent Disbursement of Loan
As there are no collaterals required, these loans can be quickly finalized. And there is not too much paperwork involved as well. Hence, it is helpful for someone in need of an emergency loan.
Requirements of Lower-Income Groups Fulfilled by Community Microfinance
Following are the most common reasons for which poor people need microfinance facilities:-
Well-being & Burial
A poverty-stricken family can benefit a lot from yearly health insurance taken through microfinance. They can avail proper treatment in a good hospital for any illness. A family member’s burial can also be facilitated by community microfinance.
Savings for Future
As explained earlier, community microfinance is about uplifting the poor from their survival struggles to building a secured future. Thus, they can use the money for retirement schemes, life insurance, fixed deposits, etc.
The low-income group doesn’t live in a well-maintained house. They can keep a home repair fund for different weathers with the extra money. They can also use finance for their child’s education and other basic needs.
Short-term Loans & Deposits
A short-term loan can be utilized for social obligations like festivals and rituals. It can be used to pay a child’s school fees and uniform expenses. There are many other unforeseen expenses in a household for which extra money is required.
Fund & Working Capital
The labour class working in bigger cities need funds to send to their hometown. They also need to help their other family members to start a small business to make ends meet. A significant amount is required in such circumstances.
Emergency Loan & Fund
Without savings, a poor person can’t create an emergency fund needed in case of family sickness and natural disasters like crop failure due to lack of rain or property loss due to floods.
Funding of Microenterprise
Both short-term loans and long-term loans can be used for funding a microenterprise to increase the sources of income and living standards. These loans can be paid back gradually through the income of the business.
Community microfinance plays a significant role in poverty reduction if supported by all sections of society. Various government and non-government organizations are coming forward to support the humble cause. It’s time to educate more and more poor people on how to get money through microfinance for the betterment of their lives.
By Aatish Khanna
– works with the Content Marketing team at Money Club – a digital chit fund platform that makes saving, borrowing, and investing your money more efficient. He writes on topics to help his readers understand processes so they can make better financial decisions. He’s the go-to person that his family, friends, and colleagues turn to for all their money matters. He loves to play board games and aspires to one day build his one finance-related board game and app.
Member since September, 2021
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