Nowadays, it is very easy for anyone to take a small loan to open a business or self-employment. All thanks to Microfinance Institutions.
You need not be rich, own assets or pay taxes to avail these small loans: these loans, called microfinance, are specially given for people to rise above the poverty line and earn a decent living.
To understand how the system works, let us understand microfinance. But Before that, you must know what is NBFC as these both terms are somewhat linked together.
What is Microfinance?
Microfinance is nothing new to India. People in urban, semi-urban and rural areas of India need some sort of financial help for their business and other requirements.
These people are hesitant to seek the help of banks because of the long list of formalities to be fulfilled to get the required money.
This is where microfinance companies can help them out.
These are financial institutions that offer small-scale financial services.
The pioneer of microfinance in India was the now-defunct Anyonya Cooperative Bank Ltd which opened in Vadodara in 1889 with a capital of Rs.79.
Its main function was to offer small loans to impoverished farmers. It was launched by a group of 23 people who wished to prevent Indian farmers falling prey to loan sharks who charged very heavy interests.
The microfinance sector of India flourished though it was somewhat unorganized during the colonial era.
To ensure that more people benefit from microfinance and rise above poverty, the Indian government regulated the sector in 1950.
Today, there are 82 major microfinance institutions in India, which offer small loans to help people rise from poverty.
If you wish to open a small business or get self-employed by running a service such as auto-rickshaw, among others, you can consider approaching any good microfinance institution in your area.
Here are top 10 microfinance institutions (MFIs) of India, some of whom are listed on the Bombay Stock Exchange.
List of 10 Best Microfinance Institutions in India:
1. State Bank of India
The topmost Nationalised Bank of India, State Bank of India is the country’s largest microfinance company in India.
It does not operate as an NBFC but is yet is by far the biggest player in the country’s microfinance sector.
SBI conducts training programs for financial inclusion in rural India, offers microfinance of up to Rs. 50,000 for home building and development for villagers.
SBI also provides finances to women’s Self Help Groups (SHGs) as part of the country’s poverty alleviation drive, funds farm equipment and machinery for small entrepreneurs and a host of other microfinance solutions.
2. Ujjivan Financial Services
Bangalore-based Ujjivan Financial Services began operating as a Non-Banking Financial Company in 2005 to offer a wide range of financial services targeting the economically active poor population of India.
UFS currently operates in 24 states and Union Territories. Its services are available in some a209 districts across India, which makes it the largest MFI in India.
The company serves over 2.77 million active customers through its 469 branches and 7,786 employees, states the company website.
In February 2017, this MFI set up the Ujjivan Small Finance Bank to offer microfinance and other banking services to economically underprivileged sections of the society.
3. Equitas Small Finance Bank Ltd
Equitas Small Finance Bank Ltd is one of the most popular microfinance institutions which commenced operations on September 5, 2016, from Tamil Nadu.
It is a division of Equitas Holdings- an NBFC operating as Non-Deposit Taking- Systematically Important-Core Investment Company.
Equitas SFB offers small loans and microfinance to women who strive for financial empowerment, persons with special needs, youth and others who aspire to open a small business or find ways of self-employment by providing various services.
The bank has helped tens of thousands of people come out of poverty.
4. M&M Financial Services
Mahindra & Mahindra Financial Services is one of the most reputed MFI in India.
It has helped millions of aspiring Indian women and youth to fulfil their dreams of becoming financially self-dependent and stable by offering microfinance.
The company offers “personalized finance for a wide range of vehicles, home development requirements and many other diverse endeavours,” states its website.
M&M Financial Services is a company listed on the BSE. It ranks as the topmost financer for farm tractors in India.
The company has served over four million customers in India with microfinance through over 1,200 branches that hire about 20,000 employees.
5. Sundaram Finance Ltd
Sundaram Finance Ltd provides microfinance loans for people to buy commercial vehicles, cars, multi-utility vehicles, construction equipment, tractors and working capital finance.
It is also a leading NBFC of India and is listed on the BSE. Sundaram Finance Ltd was launched by the Chennai-based corporate major, TVS Group.
The company offers various microfinance products such as car finance, farming equipment finance, tyre finance, equipment finance and home finance through its offices spread across India.
6. Bandhan Financial Services
Bandhan Financial Services was established in 2001 with the dual objective of poverty alleviation and women empowerment.
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It is registered as an NBFC with the Reserve Bank of India. Bandhan Financial Services Pvt. Ltd has operations in 22 states and Union Territories.
According to the company’s website, Bandhan has some 2,022 branches and has served about 6.8 million borrowers.
In 2011, US-based International Finance Corporation pumped US$ 600 million into Bandhan, to help boost its microfinance segment. BFSPL also operates the Bandhan Bank Ltd.
7. Bharat Financial Inclusion Ltd
The next microfinance institution to feature in this list is Bharat Financial Inclusion Ltd which was incorporated as an NBFC on January 20, 2005.
It was formerly known as SKS Microfinance. “BFIL distributes small loans that begin at Rs. 2,000 to Rs. 12,000 to poor women so they can start and expand simple businesses and increase their incomes.
Their micro-enterprises range from raising cows and goats in order to sell their milk, to opening a village tea stall. BFIL uses the group lending model where poor women guarantee each other’s loans,” states the company website.
BFIL offers free financial literacy training and all microfinance applicants have to pass an exam following this training.
“ BFIL also offers micro-insurance to the poor as well as financing for other goods and services that can help them combat poverty,” the company states.
8. Muthoot Microfin Ltd
Muthoot Microfin Ltd was formed in 2015 and is one of the most reputed NBFCs in the microfinance sector of India.
It is a division of the Muthoot Pappachan group (MPG that was established in Kerala in 1887. “
Muthoot Microfin’s microfinance products are “designed to promote entrepreneurship among women and inclusive growth.
The institution provides financial assistance through micro loans to women engaged in small income-generating activities.
The company also facilitates entrepreneurship development and harnesses entrepreneurship skills through skill development workshops and financial literacy classes for its clients,” states the company website.
9. Madura Microfinance Ltd
Madura Microfinance was founded in 2006. The company focuses on promoting financial literacy among rural women and economically underprivileged sections of the society.
It has over 200 branches in India. MML provides microfinance for Self Help Groups (SHGs) and individual entrepreneurs who wish to start their own small retail businesses.
A majority of microfinance products of MML are targeted at women SHGs. However, retail microfinance up to a maximum of Rs. 100,000 is available for individuals who are engaged in retail business.
The company has partnered with several banks for offering microfinance products.
10. Janalakshmi Financial Services
Janalakshmi Financial Services is an emerging microfinance company of India in the NBFC sector.
However, Reserve Bank of India has licensed JFS to open an autonomous microfinance bank under the brand Jana Small Finance Bank.
Currently, JFS offers microfinance from Rs. 15,000 to Rs. 50,000 with a maximum tenure of 24 months to open small businesses and generate self-employment.
It also provides loans for the Micro, Small and Medium Enterprises (MSME) sector of India, of Rs. 100,000 and upwards, depending upon the scale of the industry.
11. MUDRA Bank
Micro Units Development and Refinance Bank (Mudra Bank) is an initiative aimed at providing microfinance to entrepreneurs in India to start new businesses or expand existing ones.
It was launched on April 8, 2015. Mudra Bank is not a bank. Instead, it is a scheme by which participating banks and NBFCs provide microfinance.
India’s microfinance industry grew by about 60 percent to stand at Rs.640 billion during the financial year 2016-2017, according to reports published by the Indian government and independent organizations.
This volume is set to increase exponentially as more Indians take to entrepreneurship for various reasons ranging from training provided under the Skills India project and business-friendly policies being implemented in this country.
Startups in India also avail microfinance to seed the business. Consequently, a large number of PSU, private and cooperative banks are planning to acquire NBFCs that offer microfinance.
On the other hand, MFI-NBFCs are applying for banking licenses to open microfinance banks in India.
According to various news reports, several banks and leading NBFCs are already in talks with MFI companies for mergers and acquisitions. Consequently, the MFI sector of India will witness a boom.