Defining Micro Finance Institutions
Defining Micro Finance Institutions can be defined as the means for people who are financially unstable to turn minute amounts of money into large amounts.).Given this definition of the microfinance concept, it is pertinent that a clear line is drawn between microfinance and microcredit. Both these terms are largely used together or interchangeably, which often alters the meaning of what is stated. Financial experts state that microcredit refers to small loans, whereas microfinance is appropriate where NGOs and MFIs supplement the loans with other financial services like savings, insurance, etc.
The other way o Defining Micro Finance Institutions would be as the providers of financial services to low-income poor and very poor self-employed people”. Explaining this concept further is that the financial services offered by these micro finance institutions include savings schemes, insurance programs, and other services for low income people. The term “microfinance” refers to the provision of financial services to low-income clients, including the self-employed. Financial services generally include savings and credit; however some microfinance organizations provide insurance and payment services.
Defining Micro Finance Institutions means that in addition to financial intermediation, many MFIs provide social intermediation services such as group formation, development of self-confidence and training in financial literacy and management capabilities among members of a group. Thus the definition of microfinance often includes both financial intermediation and social intermediation. Microfinance is not simply banking, it is a developmental tool. Microfinance activities usually involve: Small loans typically for working capital Informal appraisal of borrowers and investments Collateral substitutes, such as group guarantees and compulsory savings and any other viable methods to help low income groups to obtain loans.
Defining Micro Finance Institutions is that they repeat larger loans, based on repayment performance Streamlined loan disbursement and monitoring Secure savings products” Another definition of micro finance is given by that states that micro finance as “the attempt to improve access to small deposits and small loans for poor households neglected by banks” amount of assets or other items which can be used as security for obtaining a loan Thus, under conventional banking, it becomes difficult for banks to offer loans to individuals with nothing to offer as security. These reasons, along with many others, prevent such individuals from getting benefited by the financing options offered by traditional banking organizations. Because of such deprivations, the financing needs of such segments of society are fulfilled by other domestic lenders at their own terms and conditions.