What are some of the salient features of microfinance instit

What are some of the salient features of microfinance institutions? Explain the rationale behind these features.

Solution

Microfinance aims empoweringr the poor especially women.

The loan amounts are small, usually for working capital purposes and sometimes for infratstructure also. The loans are collateral free. Loans are tied to savings. Mostly the poor do not have bank accounts, the microfinance institutions insist on opening bank accounts and deposit the money in the bank accounts. This encourages savings. Life insurance is also provided to the beneficiaries. The interest on loans given is nominal. Training and education is also a part of the loan process. Repayment period is reasonable taking into account the needs of the business. Loan amounts are small and the size of the loan increases if the beneficiary repays the loan on time.

The rationale behind microfinance institutions is that the poor cannot open a bank account because they do have the credentials. These microfiance institutions step in where banks fail and help empowering the poor.