The probable best debt that you can make is to invest in any Microfinance business. After getting a boost from the government with the help of microfinance loans, you can strive rapidly in this business. Look forward to some advantages and disadvantages of microfinance loans in India.
Micro financing companies are known to benefit primarily from the low-income group and especially the underprivileged sections. These companies provide easy funds and that too without any collateral. They are known to help the lower-income classes objectively while providing them credits through some relaxed provisions.
Microfinance loans can be beneficial for many of us. However, it comes with some disadvantages as well. Speaking about some of the advantages of micro financing companies include:
1. Collateral free loans
Most microfinance companies look for no collateral while they offer financial credit. The hassle-free processing and the minimum paperwork make them one of the best options for quick fundraising.
They are motivated to strengthen the core of the self-help groups while facilitating the essence of sustainable development. Getting easy loans and that too without collateral makes the microfinance companies popular among any backward section of the society.
2. Easy access to the loan amount
The financial crunch can be unpredictable. It can creep up anytime without any intimation. But with the help of these microfinance companies, you can get easy collateral-free funds. The aforementioned can help you to meet financial needs in any demanding situation. Especially if you are looking forward to establishing any business, you can take the help of such capital finance.
3. Meet the financial need
The unparalleled service provided by the Microfinance Company is exceptional. These loan facilities dedicatedly serve the unemployed and the poor people by offering them easy financial credits.
4. Extensive portfolio of loans
Microfinance companies do not limit themselves to providing emergency capital finance. They also offer working capital loans, housing loans, and business loans, and that too without much processing and formalities.
5. Promote entrepreneurship and self-sufficiency
One can expect to get the needed fund to set up a healthy business. Most businesses seek minimum investment to offer a sustainable profit in a certain period. These companies assure self-sufficiency and entrepreneurship among the backward class of society.
Speaking about the disadvantages of microfinance loans, one can look through these pointers.
1. Harsh repayment criteria
Due to the absence of compliances and legit working protocols, the companies adopt harsh repayment criteria. Any easy debt does not come with calm conditions. It is true for microfinance loans. These capital financing facilities work under strict compliances and hence could manipulate the customers for the repayment in an unethical manner.
2. Smaller loan amount
Unlike any financial banking institution, most microfinance companies offer small loan amounts. This bank does not ask for any collateral against the credited amount.
3. Higher rate of interest
Once you take the loan amount for any Microfinance Company, you will have a higher interest rate. It happens because they do not follow the footprint of any traditional bank where the fund accumulation becomes easier. The operating cost per transaction of such a loan amount becomes higher with the highest volume of transactions per day.
Combining the advantages and disadvantages that you can get from this capital finance facility, one can say that microfinance is a great business model. Someone who wants to look forward to the well-being of underprivileged sections can indulge in microfinance loans. However, one has to go through various hidden challenges.
It may not provide you with a higher return on investment, but you can be assured of optimum growth as it has some stability.
If you are not familiar with the compliance requirement, then the process of registration could be quite a daunting errand for you.
Before you invest in any microfinance company, make sure that you look forward to the advantages and disadvantages to make the journey more comfortable.