When it comes to the financial segment of society, these days, everyone is talking about microfinancing companies. One must know the significant myths and realities of the microfinance industry before considering stepping into the system. To clear the doubts you might otherwise have, here are some facts about microfinancing in greater detail.
What is microfinancing?
Microfinancing is a financial service that helps provide loans to low-income or unemployed individuals. This banking service is specially designed against the conventional banking system, where requiring a proper income status and assets is mandatory. In the olden times, such individuals often went to take personal loans from relatives or money lenders who would rob them.
Personal loans were often provided at a higher industry rate than banking services. Whatever asset the individual owned was set as collateral, including gold and land. Against this, they were given loans that were almost impossible to repay. This left them in a never-ending debt spiral, ultimately making them lose everything they had.
Understand microfinancing better to break all myths about microfinancing companies
There are many upcoming microfinance companies in India today. But what is the actual reason? Do they benefit the community? Let us know more about microfinance in detail.
The entire structure of microfinancing originated to support the underprivileged people of the society who were actively looking for loans to kick start their careers. They often need a large sum of money as an initial investment to start farming or on small equipment, such as carpentering. Without this investment, their survival often becomes difficult and almost impossible. To save these people from personal money lenders and loan sharks, microfinancing took a surge.
Regarding interest rates, each microfinancing company has its own structure. It is always lower than a personal money lender. However, there is no bar or cap to it. Thus, a loan-seeking individual must refer to various microfinancing companies before finalizing one. It shall help them get a clear and better idea of the process.
The fastest-growing microfinance company is often in the market looking out to provide loans to small-scale business owners and individuals searching for money and loans. They conduct ethical practices to help those in need. Microfinancing today is the need of a developing country, as it helps the individuals in the country grow tremendously. They help in establishing skills and businesses.
Unlike the typical loan system, these companies don’t ask their loan seekers to provide collateral or have a minimum account balance. Pay slips are also not necessarily needed. This helps unemployed people to consider starting a business. In a way, we can even say that microfinancing is paving a way where small entrepreneurs are given a chance to showcase their skills and talent and bring something unique to the world. Since it doesn’t follow hard and fast rules, they often provide loans to major businesses, including bookkeeping and accounting. They even provide loans to individuals who wish to work on their skill sets in order to run a successful business.
What are the benefits of microfinancing?
When it comes to financing, an individual needs to make decisions wisely. Spending hard money and losing it all is a risky move. Thus, it is important to understand the benefits of microfinance before taking it up. Here are the benefits of getting a loan from a microfinance company –
- It is designed for the unemployed and low-income class of society. They have contributed to uplifting the lives of many underprivileged people and are continuing to do so by helping them build a successful business.
- Since they are private companies, loan sanction is easy and immediate. It is perfect for people who are looking for emergency funding.
- They have lower loan repayment options. Moreover, individuals can even negotiate and customise the loan repayment structure.
- It is also accessible for skill development and education for those who can’t afford it.
To conclude the myths before microfinancing, this is a financial service offered to those in need. If you belong to an underprivileged or low-income class or are simply unemployed and looking for loans, you must check out various microfinancing companies. They offer loans to almost everyone,