Finance is all what we know deals with the money matters. Finance is mixed in our day to day activities ranging from buying a matchstick to raising funds for setting up a plant.
Microfinance is complete in its name-micro means small & finance means money.It relates to the money matters which deals with the smaller section.In India.this industry has grown up to 16000 crore & is still growing. It is basically based on non-collateral transactions & requires huge initial capital. It basically requires a group of people who have their earninings greater than their expenditure or in other words who have money to save.They may not fetch money in short run but in a larger span of time,it will generate income definitely depending on the efficiency of your plans etc.This has been successful in Bangladesh where the organisation named BRAC is taking the charge of microfinance there.In India,this has been implemented by many organisations like AIF etc.
Let’s understand basically what does microfinance or particularly IMPACT INVESTMENT means.Suppose there are 4 people who come together & vow that they will every week deposit 100 rupees .Now after every month they will have 400 hundred rupeed in ther reserves.Now if someone is in a need of money then he can withdraw that amount from the reserve, obviously with the consent of the other group members, on an interest basis say he withdraws 100 rupees on an interest rate of 10% monthly.He repays 100 along with 10 rupees as interest.Now this 10 rupees will be divided amongst the four persons i.e 2.5 per person.
Now here what an MFI does is that it collectivises the group of people having same characteristics either on the basis of religion,caste,profession etc.Then it lends the money on a quantum scale i.e it do not lend money on a continuous basis but lend like 5000,10000,15000 & not 7000 or 12000.Here,the group is given say 100 per person,then in a group of five the amount given is 500.Now here the amount is loaned & then after a particular period of time it has to be repaid at the stipulated interest rate.If a particular person is not able to repay for whatever reason it has to be born by other four person.This is called JLG or joint liability group.
The basic negative factor here is it being non-collateral in nature.How can you trust a person & lend money running in thousands?Now here comes the vision & income regeneration techniques.If you think that a group is in genuine need of money and is capable of generating income in future then lending money will not be a bad debt!
P.S –This requires a huge capital so better search for a venture capitalist or get adopted by Bill gates.
