Micro Loan

Understanding Microloans in India:

Microloans are small, short-term loans designed for individuals or entities with minimal capital requirements, including self-employed professionals, start-ups, small businesses, and low-income families. These loans cater to those with limited or no access to traditional financial institutions, offering crucial support for entrepreneurial or business-related endeavours.

Government Support for Microloans

The Reserve Bank of India (RBI), in collaboration with the Government of India, has partnered with private companies and Microfinance Institutions (MFIs) to extend financial services to the underbanked and unbanked populations. NGOs also play a significant role in micro-lending, alongside MFIs and private firms.

Eligible Borrowers

Microloans are accessible to:

• Self-employed professionals, sole proprietors, and small retailers
• Traders, manufacturers, and consultants
• Start-ups and women entrepreneurs
• Individuals from economically weaker sections, minorities, or those with minimal wage earnings

Uses of Microloans

Microloans can address a variety of financial needs, such as:

• Working capital requirements
• Cash flow management
• Business start-ups
• Staff salary payments
• Debt consolidation

They are particularly beneficial for individuals unable to secure conventional business loans.

Popular Microloan Providers in India (2023)

1. Bandhan Bank

• Interest Rate: 21.95% p.a.
• Loan Amount: 15,000 – 1 lakh
• Processing Fee: Nil for loans up to 25,000; 1.25% + GST for higher amounts
• Repayment Tenure: 1-2 years
• Doorstep Service: Available through Dedicated Doorstep Service Centre (DSC)

2. BSS Microfinance (Kotak Mahindra Bank Affiliate)

• Interest Rate: 25% p.a. onwards
• Loan Amount: 5,000 – 80,000 under the Joint Liability Group (JLG) concept
• Processing Fee: 1% of the sanctioned amount (for loans over 25,000)
• Collateral: Not required

3. Annapurna Microfinance

• Interest Rate: 23.55% – 23.99% p.a.
• Loan Amount: 10,000 – 1lakh
• Processing Fee: 1.5% + GST
• Repayment Options: Weekly, fortnightly, or monthly
• Tenure: 12-36 months
• Insurance: 7.5 lakh per 1,000 annually

4. SKS Microfinance (Income Generation Loans - Aarambh)

• Interest Rate: 19.75% p.a. onwards
• Loan Amount: 9,100 – 20,010 (initial loans); increased based on credit history
• Processing Fee: 1% of the sanctioned amount
• Repayment Tenure: Weekly instalments for up to 50 weeks

5. Equitas Small Finance Bank

• Interest Rate (Microfinance): 23% p.a. onwards
• Loan Amount: 2,000 – 35,000
• Processing Fee: Up to 1% of the loan amount
• Target Group: Economically Weaker Sections (EWS) and Low-Income Groups (LIG)

6. Ujjivan Small Finance Bank

• Interest Rate: 22% p.a. onwards (reducing balance)
• Loan Amount: 5,000 – 1lakh
• Processing Fee: 1.2% (for loans above 25,000)
• Repayment Tenure: 6 to 36 months

Other Notable Providers

The National Bank for Agricultural and Rural Development (NABARD), sponsored by the Government of India, also offers microfinance to rural and agricultural communities.

Key Considerations

Applicants are encouraged to first explore loans from private and public sector banks or Non-Banking Financial Companies (NBFCs), as they typically offer lower interest rates than MFIs. However, for those with low credit scores or no credit history, microloans from MFIs can be a viable option.

Note: Interest rates, fees, and terms mentioned are subject to change based on RBI guidelines and provider policies. Additional taxes, such as GST, may apply. Always verify the latest terms before applying.