As per latest announcement from RBI, it proposes to make ‘all micro loans collateral free’. It aims to make micro-lending collateral free not just for MFIs, but for all lending institutions. 

What are MFIs? Why has the RBI come up with this announcement?

MFIs or Micro-Financing Institutions offer financial support to low-income groups. They offer services like micro-savings, micro-loans, and micro-insurance.

RBI has reiterated the social objective of MFIs in aiding low income population to avail timely credit that is collateral free. In order to include microfinance companies that are catering to about 70% of such population, RBI wants to extend this framework to include them too.

What are the types of micro financing available in India? What kind of loan amount is available under micro financing?

Micro financing is primarily of 3 types: Micro loans, Micro savings and Micro insurance. Micro financing is primarily offered to those low-income groups who don’t have access to traditional lending schemes. Micro financing usually offers loans of up to Rs.1 lakh.

Is micro-financing available to businesses only?

No, micro-financing is available for both individuals and businesses. 

Who are the primary distributors of micro-loans? Who are include under MFIs?

Micro-loans are primarily regulated by rural SHGs (self-help groups) and MFIs. MFIs usually consists of co-operative banks and rural banks. In India microfinancing is primarily handled by – 

  • Rural banks 
  • Credit unions 
  • Non-governmental organisations (NGOs) 
  • Government banks 
  • Rural and Urban Co-operatives 

Micro-financing is an important aspect of MSME financing, allowing businesses and individuals to take care of credit needs for their business and personal needs.