Skip to main content

Micro Finance Institutions (MFIs)

 

Micro Finance Institutions (MFIs)


  • Microfinance Institutions, also known as MFIs, are businesses that provide financial services to low-income people.
  • Typically, they operate in rural areas and among low-income people in urban areas, spreading small loans.
  • MFIs offer much-needed assistance to the economically disadvantaged, who would otherwise be at the mercy of high interest rates and the local moneylender.
  • The model began as a mechanism for poverty alleviation, focusing on the economic and social upliftment of marginalised groups by lending small sums of money to women for income-generating activities without any collateral.
  • Some MFIs that meet certain requirements and are non-deposit taking entities are regulated and supervised by the RBI as Non-Banking Financial Companies (NBFCs). NBFC MFI refers to these “Last Mile Financiers.”
  • The aim of bringing them under the RBI’s jurisdiction was to make these NBFC MFIs more healthy and accountable.

Digitalization and the MFI Sector’s Expansion

  • Several improvements to the sector’s operating model have been implemented over time, including digital interventions in the lending value chain.
  • Digital technologies have been embraced by MFIs to remove redundancies, allow fast customer onboarding, loan disbursements, and even cashless collections.
  • MFIs have been able to use digital technology to not only reach a larger number of clients and therefore expand at a faster rate, but also to do so more efficiently by streamlining processes and shortening turnaround times.

Challenges associated with MFI 

  • MFIs’ Social Objective Has Been Overlooked: In their pursuit of development and profitability, MFIs’ social objective—to better the lives of society’s marginalized—seems to have been steadily eroding.
  • COVID-19’s Impact: It has had an effect on the MFI market, with collections taking a hit at first and disbursals already lagging behind.
  • Inadequate Information: Although total loan accounts have increased, data on the relative poverty-level improvement of MFI clients is fragmented, making it difficult to determine the actual effect of these loans on clients’ poverty levels.

Non-Banking Financial Company-Micro Finance Institution (NBFC-MFI)

  • The NBFC-MFI is a financial institution that does not accept deposits.
  • Minimum Net Owned Funds (NOF) of Rs. 5 crore is needed to qualify as an NBFC-MFI.
  • Qualifying Assets account for at least 85% of the company’s net assets.
  • Qualifying Assets are assets that will take a significant amount of time to prepare for their planned use or sale.
  • The distinction between an NBFC-MFI and other NBFCs is that, whereas other NBFCs can run at a high level, MFIs only cater to the lower social strata who need smaller loans
Labels:

Comments

Post a Comment

Popular posts from this blog

Major Literary Works & Authors in Gupta Period

  Major Literary Works & Authors in Gupta Period The Gupta period was known as the Golden period of India in cultural development. It is considered as the one of the supreme and most outstanding times. Gupta Kings patronized the Sanskrit literature. They generously helped Sanskrit scholars and poets. Eventually Sanskrit language became the language of cultured and educated people. Kalidasa He was a Classical Sanskrit writer, extensively considered as the greatest poet and dramatist of Gupta Period. The six major works of Kalidasa are Abhijnanashakuntala Vikramorvashi Malavikagnimitra The epic poems Raghuvamsha Kumarasambhava Meghaduta Vishakhadatta The famous plays of Vishakhadatta are Mudrarakṣhasa Mudrarakshasha means “Ring of the Demon” and it recites the ascent of Chandragupta Maurya to throne. Shudraka He is a king as well as poet The famous three Sanskrit plays contributed by him are Mrichchhakatika (The Little Clay Cart) Vinavasavadatta A bhana (short one-act monologue) ...
Post a Comment
Read more

Public Distribution System in India

Public Distribution System in India Public Distribution System (PDS) is a  food Security System  established  under the Ministry of Consumer Affairs, Food, and Public Distribution  by the govt. of India         PDS is public rationing system of India. India’s Public Distribution System (PDS) is the largest distribution network of its kind in the world. PDS was introduced around World War II as a war-time rationing measure. In 1960s due to food insecurity, the government set up the Agriculture Prices Commission and the Food Corporation of India to improve domestic procurement and storage of food grains for PDS. By the 1970s, PDS had evolved into a universal scheme for the distribution of subsidised food. In 1997, the government launched the Targeted Public Distribution System (TPDS), with a focus on the poor. TPDS aims to provide subsidised food and fuel to the poor through a network of ration shops. Food grains such as rice and wheat tha...
4 comments
Read more

CASE STUDY PART-2

CASE STUDY-1 Mihir is a new Panchayat secretary. Within few days he got a circular which said that he should soon conduct Grama Sabha to finalize the action plan of MGNREGA. Action plan contains the list of works to be undertaken in the villages and their estimated expenditures. This should be decided in the Grama Sabha and the decision of Gram Sabha is immutable. The Gram Sabha was held and chairman, all elected members, officer in-charge,engineer,  people from villages debated and finally listed important works to be undertaken and the estimated expenditure was decided there itself. Next, this plan had to be approved in the Panchayat meeting and sent to Tehsil for further approval for sanction of funds. The chairman of Panchayat, who was also a class-I contractor, met Mihir and asked him to manipulate the funds estimates. Even few members who themselves were small time contractors and who had previously used machines in MGNREGA scheme to finish works and draw money, jo...
Post a Comment
Read more