Microcredit refers to small loans that are provided to entrepreneurs and individuals with low incomes. The objective of microcredit is to empower individuals financially and assist in alleviating poverty. By providing access to credit without collateral requirements, microcredit aims to support livelihoods and promote financial inclusion. This article discusses the concept of microcredit in-depth, highlighting its key features and benefits in the Indian context.

What is microcredit?
 

Microcredit, also known as microfinance, involves the provision of small loans known as microloans to entrepreneurs and individuals. Typically, these loans range between Rs.10,000 to Rs.50,000. Micro-credits were developed to assist those without stable incomes, credit histories, or access to traditional sources of financing. Through microfinance institutions (MFIs) and non-profit organisations, individuals can access working capital loans without collateral requirements.

The individuals who benefit from microcredit usually belong to low-income households in rural or semi-urban areas. They may include small shop owners, farmers, self-employed professionals, and home-based entrepreneurs. As these individuals lack formal credit histories, traditional banks are less likely to provide them with loans. Microcredit aims to fill this gap by evaluating borrowers based on their character, repayment capability, and existing income levels. 

Microcredit in the Indian context
 

In India, microcredit has played a major role in promoting financial inclusion and empowering socially-disadvantaged communities. With over 70% of the population residing in rural regions, access to formal banking remains limited. Microcredit aims to bridge this gap by delivering easy credit through localised MFI branches. Some key features of microcredit in India include the following:

• Loan sizes range from Rs.10,000 to Rs.50,000 based on needs and income levels.
• Interest rates are reasonable, usually ranging from 18-24% annually.
• Loans are provided without collateral requirements as they are based on character assessment.
• The Joint Liability Group (JLG) model is commonly used where groups of 5 individuals jointly borrow and guarantee repayment.
• Repayment of the loan is made through regular instalment schedules suited to loan purposes such as weekly, fortnightly, or monthly.
• Loans can be used for various income generating activities like agriculture, shops, manufacturing etc.
• Repeated and larger loans are made available as borrowers build strong repayment histories.

Benefits of microcredit
 

Microcredit offers numerous benefits that have significantly empowered individuals and communities across India. Some of the key benefits include the following:

• Financial inclusion: By delivering easy credit to those outside formal banking, microcredit has improved access to much needed financial services.
• Income generation: Through working capital loans, individuals are able to invest in small businesses, agriculture, and even take up paid occupations to generate stable incomes.
• Poverty alleviation: Steady incomes help improve standards of living as basic needs around food, healthcare, and housing are met more effectively through microcredit.
• Entrepreneurship promotion: Small businesses in rural areas have grown through microcredit support, adding to the local job creation and economic activity.
• Women empowerment: A high percentage of microcredit beneficiaries are women who gain financial independence through income generation from home-based occupations or small shops.
• Skill development: Along with financing, many MFIs provide business training, financial literacy, and skills development support to microcredit users.
• Asset growth: Over time, through stable repayments and repeated loans, individuals build creditworthiness to further invest in assets like livestock, equipment, or property.

Role of Microfinance Institutions
 

Microfinance Institutions (MFIs) play a major role in facilitating microcredit delivery across the country. They include non-profit societies, cooperative structures, and companies exclusively focused on microcredit programs. MFIs perform critical functions around microcredit including assessing loan needs, disbursing and collecting repayments, as well as providing business and financial literacy support. Through thousands of localised branches, often in rural regions, MFIs ensure credit outreach even in remote areas. Given the high operating costs in servicing many small loans, MFIs are able to remain sustainable through reasonable interest rates charged to borrowers. 

How to choose a lender for a microloan?
 

There are several options available when it comes to choosing a lender for microfinance. Some key factors to consider are the interest rates offered, loan amount and tenure, documentation requirements, disbursal turnaround time, and service quality. It is important to complete a thorough research and compare various microfinance institutions based on your specific business needs.

One of the leading options for microfinance is Metra Trust. Metra Trust offers a customised microfinance product called 'FIRST STEP micro business loan', catering to the requirements of micro enterprises. The loan amount ranges from Rs. 25,000 to Rs. 30 lakh with a maximum tenure of up to 240 months.

Interest rates start from as low as 13% for secured loans, which is very competitive in the microfinance segment. A key USP of Metra Trust is minimal documentation requirements. Loans up to ₹10 lakhs can be availed without collateral. Another advantage is the quick turnaround time. The bank disburses loans within just 4 days of application, subject to KYC compliance and eligibility requirements being successfully met. This ensures entrepreneurs get timely access to capital for their business needs.

Conclusion
 

Microcredit has significantly contributed to the financial inclusion and development across India over the past few decades. By providing small loans without collateral, microcredit empowers individuals through entrepreneurship and income generation. The socio-economic benefits of stable livelihoods, poverty reduction, women empowerment and local economic growth through microcredit have been immense. While access to microcredit remains limited in some remote regions, its potential to uplift underserved communities remains huge. Going forward, strategic policy support to MFIs can help further scale the microcredit outreach.



 

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Metra Trust or its affiliates to any licensing or registration requirements. Metra Trust shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.