Microloans are a short-term loan, generally with a smaller loan amount that can be availed by startups, micro enterprises, self-employed individuals and small business owners with low capital requirements. It is a type of small or micro finance offered to small scale entrepreneurs or low-income group families who have minimum or almost no access to financial or lending institutions.
RBI with the help of the Government of India, has launched several initiatives to connect the unbanked and under-banking individuals or groups to the formal credit system. The government of India aims to provide them with the type of funding that they are looking for, in partnership with private limited companies and Micro Finance Companies(MFIs). The most popular micro-lenders after MFIs and private limited companies are NGOs.
Objective of Microloans
Its main objective is to encourage socio-economic development among unbanked and under-banked entrepreneurs and families. It also aims to promote Self-Help Groups (SHGs) and contribute towards the economic development of the country. It will pave the way in supporting women entrepreneurs across the nation. Microloans also known as microfinance are also offered by National Bank for Agricultural and Rural Development (NABARD), supported and sponsored by the Government of India.
Who can take microloans?
Microloans can be majorly availed by:
- Self - employed individuals
- Sole proprietorships
- Women entrepreneurs
- Unemployed individual
- Minimum wages workers
- Minorities, etc.
What is the purpose of microloans?
People who find it difficult availing traditional bank loans often opt for microloans or micro financing. Microloans was curated for various business related activities such as:
- Starting a new business venture
- Maintaining everyday cash flow
- Meeting working capital requirement
- Debt consolidation
- Managing day-to-day expenses
- Paying salaries to staff, etc.
How to apply for a microloan?
Borrowers can visit the official website of the MFI (Micro Finance Institution) of their choice and fill in the loan application form and submit with the required documents to avail microloans. An MFI representative will contact you after reviewing your loan application and shall run through the loan formalities with you. Once all the documents and formalities are fulfilled then your loan amount shall be disbursed in your bank account.
Anyone in need of funds can apply for business loans from private and public banks or NBFCs. The interest rates offered by banks and NBFCs are comparatively lower than Microfinancing Institutions. Normally borrowers with very low credit scores or no credit history apply for micro loans.
What are the documents required for Microloans?
Documentation for availing microloans varies from lender to lender, the following are the documents that are usually needed:
- Proof of office address
- Passport-size photos of the applicants and co-applicants
- PAN card, copy of Passport, ration card
- Updated application form
- Certified copies of AOA/MOA/Partnership deed
- Track record of repayment (credit report)
- Audited financials of the previous 2 years
- Bank account statements for the past 6 months
- Proforma invoice to the equipment that is to be financed
- For lawyers, CAs, architects, and doctors - Professional qualification certificates
Popular Microloans in India
In this section, you can find a list of the top micro loans in India. Check the eligibility, interest rate and loan amount to choose your preferred option.
1. BSS Microfinance
Interest Rates - Starting from 25% onwards.
Loan Amount - Get minimum of Rs. 12,000 to maximum of Rs. 50,000 as loan amount.
Processing Fee - 1% of the loan amount on micro loans of amount above Rs. 25,000.
Collateral - Not required.
2. SKS Microfinance
Interest Rates - Starting from 23.55% onwards.
Loan Amount - Minimum of Rs. 7,591 and maximum of Rs. 11,610 for the 1st loan. For the next loan the minimum amount is increased by Rs. 14,959 determined by credit history.
Processing Fee - 1% of the loan amount.
Interest Rates - Starting from 17.95% onwards.
Loan Amount - Minimum of Rs. 1,000 and maximum of Rs. 25,000.
Processing Fee - Nil.
Repayment Tenure - Up to 12 months.
Doorstep Facility - Available through Dedicated Doorstep Service Center (DSC).
4. Annapurna Microfinance
Interest Rates - Starting from 21.90% onwards.
Loan Amount - Minimum of Rs. 10,000 and maximum of Rs. 80,000.
Processing Fee - 1% of the loan amount + GST.
Repayment Cycle - Weekly, fortnightly or monthly, as per the choice of the borrower.
5. Ujjivan Small Finance Bank
Interest Rates - Starting from 22% onwards.
Loan Amount - Minimum of Rs. 2,000 and maximum of Rs. 60,000.
Processing Fee - 1.2% of the loan amount (For loan amount above Rs. 25,000).
Repayment Tenure - 6 months, 1 year, 1.5 years and 2 years.
6. Equitas Small finance Bank
Interest Rates - Starting from 23% onwards.
Loan Amount - Minimum of Rs. 2,000 and maximum of Rs. 35,000.
Processing Fee - Up to 1% of the loan amount.
Eligibility - Economically Weaker Section (EWS) & Low Income Group (LIG) categories
In India many people do not have a basic savings account. But people also do require financial services at some point of their life for various reasons such as housing, business, education, or protection.
Microloans provide access to funds for individuals who are unbanked or underbanked. If microfinance institutions were not offering loans to this segment of the society, these groups would have no other option than to borrow money from friends or family members or fall into the trap of informal money lenders. The chances of them opting for fast cash loans or payday advances, that bear huge interest rates, are also high.
Microloans or microfinance helps these groups invest wisely on their needs, and hence, is in alignment with the government’s vision of financial inclusion in the country.