Microfinance is a category of financial services targeting individuals and small businesses who lack access to conventional banking and related services.Microfinance includes microcredit, the provision of small loans to poor clients; savings and checking accounts; microinsurance; and payment systems, among other services. Microfinance services are designed to reach excluded customers, usually poorer population segments, possibly socially marginalised, or geographically more isolated, and to help them become self-sufficient.
The microfinance industry, which has witnessed close to 80 per cent growth in loan disbursals during the first quarter of FY-23 on a year-on-year basis, is likely to register a further pick up in disbursements during the remaining part of this fiscal backed by pent-up demand, expansion of branch network and conducive policy.
Loan disbursals by microfinance industry registered 80 per cent growth during Q1 FY-23 to ?45,830 crore as compared to ?25,503 crore same period last year.The number of loans disbursed also increased to 116 lakh during the quarter as against 71 lakh in the same period last year, indicating continued growth of microfinance portfolio, Microfinance Institutions Network (MFIN) said in the 42 nd issue of Micrometer report for quarter ending June 30, 2022.
Here is how the microfinance sector is expected to grow further:
The role of banks and financial institutions
Banks, microfinance institutions, and other financial institutions provide a significant amount of financial support for small businesses by either helping them start up or grow. Furthermore, they have a sizable workforce.The prompt access to capital at fair terms is one of the essential ingredients for these firms to develop and thrive.
During the pandemic period, organisations, particularly small businesses, faced significant obstacles. Our society depends on small enterprises, and our collective actions can affect whether they survive. The financial actors are aided by the expert and persuasive arrangements made by these parties when they are required to spur economic growth.
A loan for business growth
In this case, a company loan is a good choice. There is no need for the entrepreneur to make a personal contribution with the aid of an unsecured loan or SME loan.The demand for many products and services significantly increases over time. Financial institutions see stronger demand for loans from small firms as they must plan to satisfy demand, which results in increased production and stock levels and more money invested in working capital.
Nowadays, it’s not difficult to obtain a quick loan online due to the digitalization of society. Unhesitatingly, numerous platforms pay consumers for rapid loans. The processing of a loan to a customer is also now simple thanks to internet banking, which eliminates the requirement for physical presence.
Building up the Atmanirbhar Bharat initiative
Most seasonal goods are produced in India, which is evident during the seasons. For instance, during COVID-19, when imports of goods from China were prohibited, India stood forward to take the initiative to self-manufacture the products for the people. Similar to this, a lot of small businesses are helping the “Make in India” effort by promoting it with the help of banks and the financial industry.
By providing not only the necessary capital support but also guidance and advice on the numerous government and other initiatives for this sector, banks and the finance industry, which have been actively assisting the MSME sector, will continue to play a crucial role in the success of this initiative.
Increase in E-commerce and online transactions
India’s online retail industry experiences a sharp increase in sales, giving shoppers and vendors more chances to buy and sell their preferred goods. E-commerce sites offer discounts during seasonal sales that customers cannot otherwise obtain, forcing them to stretch their budgets or take out loans to purchase the desired goods. Similar to this, retailers get loans to increase their inventory.
Businesses that banks, microfinance institutions, and NBFCs support the most
Retail industry: Since consumers tend to spend the most in the seasonal time, this is the period of greatest demand for the retail sector.
E-com sector: As e-commerce has grown to be a significant component of the economy, major e-com businesses frequently offer discounts during the seasonal sales to draw customers. The merchants on these platforms consequently experience a sharp increase in demand as well as increased financing needs at this time.
Manufacturing sector: The industries are ultimately responsible for producing the basic items needed to satisfy the increased demand, and they in turn require extra capital assistance.
Banks, microloans, and NBFCs all offer unique financing options for consumers over the seasonal time. The overall demand increases as a result of seasonal sales.
(The writer, Prem Singh Hooda, is the managing director at Prayatna Microfinance)
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