Microfinance Loan
A Microfinance Loan is a small-scale loan provided to low-income individuals, self-employed workers, and small entrepreneurs who do not have access to traditional banking services.
Types of Microfinance Loan
Below are the most common types available in India
Income Generation Loan (IGL)
Provided to individuals or groups to start or expand small businesses like tailoring, dairy farming, handicrafts, or street vending.
Group Loan / Joint Liability Group (JLG) Loan
Offered to a group of 5–10 individuals, where each member is jointly responsible for repayment.
Self-Help Group (SHG) Loan
Granted to registered groups of rural women, helping them undertake income-generating activities collectively.
Microenterprise Loan
Aimed at small-scale entrepreneurs running shops, food stalls, workshops, or service centers.
Agricultural Micro Loan
Supports small and marginal farmers for crop cultivation, buying seeds, fertilizers, or renting farm equipment.
Consumption Loan
Provides financial assistance for education, healthcare, housing, or emergency expenses for low-income households.
Why Is Microfinance Loan Important?
Promotes Financial Inclusion
Brings unbanked and underserved individuals into the formal credit system, especially in rural areas.
Encourages Entrepreneurship
Helps small entrepreneurs and women start self-sustaining businesses, creating local employment.
Empowers Women
Majority of microfinance beneficiaries are women, promoting financial independence and social empowerment.
Reduces Poverty
Enables low-income families to increase income, improve living standards, and reduce dependency on moneylenders.
No Collateral Required
Loans are granted without security, making them accessible to economically weaker sections.
FAQs
What is a Microfinance Loan?
A Microfinance Loan is a small, collateral-free loan designed to provide financial support to low-income individuals for business, agriculture, or personal needs.
Who is eligible for a Microfinance Loan?
- Individuals or families with annual income below ₹3 lakh
- Women self-help groups (SHGs)
- Small farmers, vendors, and artisans
- People without access to formal banking
What is the loan amount available under microfinance?
Loan amounts generally range from ₹10,000 to ₹2 lakh, depending on the borrower’s income, repayment capacity, and lender’s policy.
Do I need collateral to get a microfinance loan?
No. Microfinance loans are collateral-free and based on trust, income level, and group guarantees.
What is the interest rate for microfinance loans?
Interest rates range between 10% to 24% per annum, depending on the institution and borrower profile.