Microfinance institutions offer important functions to the people, who are not able to meet the eligibility criteria of commercial banks. On elementary basis, it offers an opportunity to get cheap capital. Microfinance institutions exist to alleviate poverty. They do so by making loans with relatively low interest rates to people who are not able to access more traditional forms of financing.
Since its early days, the microfinance industry has grown to include other financial services other than small-business loans. Microfinance banks often offer savings and other deposit accounts, as well as home mortgage loans and credit cards. Certain microfinance banks also offer their members affordable insurance products, including life, medical, disability and property insurance. Microfinance banks may also give emergency loans for unexpected expenses such as major illnesses or hospitalizations.
FUNCTIONS OF MICROFINANCE BANKS:
Apart from the key function of lending money, microfinance institutions also offer basic education to people on how to manage money and run a business efficiently. In some cases, they also keep criteria of education for borrowing group to get eligible for cheap loans.
* Group Lending:
Even though, offering a loan without any collateral may leads to higher delinquencies, most of the microfinance institutions charge lower interest rates as compared to commercial banks. Microfinance institutions need their borrowers to create a group, so as to ensure timely repayments. Formation of group act as a support for each other and every member can guarantee the repayment of other member of group. Through this way, microfinance institutions can collect weekly payments more efficiently and it leads to the formation of support group if borrower faces any problem.
* Women Empowerment:
Research shows that, profits made by woman because of loan are invested for...