Modes of Setting-up a Micro Finance Company

Micro Finance Companies are also termed as Micro Credit Company, owing to the fact that the finance involved is lesser as compared to other sectors of the society. As the name suggest Micro finance Company are financial institutions providing loan to lower income group/individuals or the small businesses, who otherwise would have no other access to financial services.

Benefits and scope of Microfinance

As per the World Bank estimation approximately more than 500 million people have directly or indirectly benefited from microfinance-related operations. Further, as on 2021, more than 120 million people have directly benefited from microfinance-related operations.

The benefits of microfinance are far more than just providing people a source for capital. Entrepreneurs who create successful businesses, create jobs, trade, and overall economic improvement within a community. Microfinancing organizations support a large number of activities that range from providing the basics—like bank checking and savings accounts to?startup capital for small business?entrepreneurs and educational programs that teach the principles of investing.

The majority of microfinancing operations take place in developing nations, such as Uganda, Indonesia, Serbia, and Honduras. Many microfinance institutions focus especially on helping women.

Objective of Micro Finance Companies are:

1. To give an opportunity to people in the low-income group to become self-sufficient,
2. To offer banking services involving small monetary amounts,
3. To?provide financial assistance to?individuals who work in varied trades like transportation, fishing, carpentry etc,
4. To offer?financial assistance?to small enterprises that?cannot?afford?any collaterals,
5. To increase?the participation of women in generating?sustainable?livelihood,
6. To increase?and enrich?the mode of livelihood for low-income individuals and creating opportunities for self-employment.

Working Model of Microfinance Companies in India

1. Self Help Group (SHG)

Self Help Group is an informal association of small entrepreneurs with similar socio-economic backgrounds. Small entrepreneurs including women coming together to create a common fund to meet the emergency needs of their business. The SHG is a savings-oriented group.

These groups are generally non-profit self-sustaining organizations. The group itself takes care of the responsibility of debt recovery.

1. Joint Liability Group (JLG)

Joint Liability Group concept for microfinance was an initiative by NABARD. JLG is an informal group of 4-10 individuals like small farmers, rural entrepreneurs, people of the same village/locality belonging from same economic activity who are willing to repay the loans jointly.?

Microfinance companies can finance a (JLG) in two ways

1. Financing to the group directly
2. Financing to the individual in the groups

Existing players in the field having NBFC registration.

• Best Microfinance Companies in India Working as Banks

1. Bandhan Bank Limited
2. Ujjivan Small Finance Bank
3. Equitas Small Finance Bank
4. Suryoday Small Finance Bank

• Best Microfinance Companies for MSME and Micro Loans

1. Satin Creditcare Network Limited
2. Annapurna Finance Pvt. Ltd
3. Arohan Financial Services Pvt. Ltd

• Best Microfinance Companies Focused on Women Upliftment

1. Muthoot Microfin Limited
2. CreditAccess Grameen Limited
3. CreditAccess Grameen Limited
4. Fusion Microfinance Private Limited

Existing players in the field having registration as Section 8 Company.

1. Cashpor Micro Credit?
2. Gramutsav Microservices Foundation
3. Hand In Hand Welfare Foundation
4. Aadarsha Welfare Society
5. Initiatives for Development Bangalore, Foundation
6. Janodaya Trust
7. Indian Association for Savings and Credit and many more.

Modes of Setting-up a Microfinance Company in India

Micro Finance companies are of two forms, they are:

1. Micro Finance Institutions registered with RBI
2. Section 8 Company under the provisions of Companies Act, 2013

Final Words

Microfinance Companies?play a crucial role in uplifting the rural youth, women and people by providing them with the formal channels of credit. Now the people living in rural and backward areas can get easy loans from microfinance Companies instead of depending on the local lenders who exploit them.

Microfinance has a significant role to play in reducing poverty in societal structure. In India, several banks have started lending money to microfinance institutions. It promotes women’s empowerment, which is a significant step in the growth of the nation.