Benefits Of Microfinance And Micro Credits

Microfinance or micro-credits are a kind of financial help on a small scale such as small loans, small credits, savings, or insurance schemes that are provided to people who have no access to an independent source of capital for their financial needs. Microfinance has helped several financially unstable people to start a new business, to pursue their interests, and become financially dependent rather than resorting to illegal ways of making money.

Financial analysts view microfinance as a strategic move to help people below the poverty line to live a decent standard of life on their own terms. The other hidden benefits of microfinance and micro-credits include:

  1. Banks sanction loans to customers based on their credit score and value of the collateral that they are willing to mortgage. However, not everyone maintains a good credit score nor have collateral to avail loans. Microfinance is especially useful in such cases where people without a credit score or collateral can seek small loans, for example, persons with no previous bank accounts or people below the poverty line.

  2. Microfinancing supports women empowerment, as microfinance firms believe that women borrowers are more likely to repay their debts than men who often remain as defaulters. Hence, microfinance is a preferred option for women who are looking to stand on their own legs, for example, women who wish to set up a small restaurant or a cafe to earn a consistent income.

  3. Additionally, microfinance and micro-credits favor education. Loans can be availed to educate children, thus prevent the urge of pulling out children from schools due to lack of funds. Moreover, a family that has the support of micro finances as their source of income will also allow children to continue their education, as there is no financial crunch.

  4. Moreover, availability of funds will automatically improve the health and sanitation of a particular community, as it has access to cleaner water, nutritious food, safer housing, and decent standards of living & livelihood.

  5. Microfinance and micro-credits have helped several people create employment and a steady source of income. Thus, this has a direct correlation with the health of an individual and the society, as it raises the bar of the socio-economic standards in the society. Moreover, it plays a crucial role in preventing social exclusion and anti-social elements in the society.

  6. In addition, microfinance offers better rates of repayment, unlike conventional loans where the interest rate and repayment terms are high and demanding.