{"id":5589,"date":"2020-03-30T10:46:22","date_gmt":"2020-03-30T05:16:22","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=5589"},"modified":"2020-07-10T12:36:34","modified_gmt":"2020-07-10T07:06:34","slug":"role-of-micro-finance-institutions-in-financing-msme","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/role-of-micro-finance-institutions-in-financing-msme\/","title":{"rendered":"Role of Micro Finance Institutions in Financing MSME"},"content":{"rendered":"\n<p class=\"has-drop-cap\">Micro Finance Institutions are the main source of funding for the MSME and small entrepreneurs, in case where they can&#8217;t access banking or any other related services. Microfinance provides assistance to the poor section of society to overcome poverty and helps in economic development. MFI not only provides credit to <a href=\"https:\/\/corpbiz.io\/msme-registration\"><strong>MSME<\/strong><\/a>, but also includes other services like insurance, savings, and remittance. MSME sectors have been considered as an important pillar of economic growth of the country. Here, in this blog, we will discuss the Role of Micro Finance Institutions in financing MSME briefly.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/role-of-micro-finance-institutions-in-financing-msme\/#What_are_the_Micro_Small_and_Medium_Enterprises\" >What are the Micro Small\nand Medium Enterprises?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/role-of-micro-finance-institutions-in-financing-msme\/#What_is_the_source_of_finance_for_small_businesses\" >What is the source of finance for small businesses?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/role-of-micro-finance-institutions-in-financing-msme\/#What_are_the_Micro_Finance_Institutions\" >What are the Micro Finance Institutions?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/role-of-micro-finance-institutions-in-financing-msme\/#What_is_Micro_Finance\" >What is Micro Finance?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/role-of-micro-finance-institutions-in-financing-msme\/#Goals_of_Microfinance_Institutions\" >Goals of Microfinance Institutions<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/corpbiz.io\/learning\/role-of-micro-finance-institutions-in-financing-msme\/#What_are_the_main_features_of_MFIs\" >What are the main features of MFIs?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/corpbiz.io\/learning\/role-of-micro-finance-institutions-in-financing-msme\/#What_is_the_role_of_microfinance_in_funding_small_and_medium_enterprises\" >What is the role of microfinance in funding small and medium\nenterprises?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/corpbiz.io\/learning\/role-of-micro-finance-institutions-in-financing-msme\/#Conclusion\" >Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_Micro_Small_and_Medium_Enterprises\"><\/span>What are the Micro Small\nand Medium Enterprises?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>From the last 5 decades, <strong>MSME&#8217;s in India<\/strong><sup><a href=\"https:\/\/msme.gov.in\/\"><strong>[1]<\/strong><\/a><\/sup> has emerged as a highly dynamic and vibrant sector. MSME not only help in the strengthening of rural and backward areas but also provide employment opportunities. Micro, small and medium enterprise are complementary to large industries as additional units and provides its immense contribution towards the socio and economic growth of India. <\/p>\n\n\n\n<p>According to Micro, Small and Medium Enterprise Development Act, 2006, \u201cAn enterprise where the investment in plant and machinery does not exceed twenty-five lakh rupees; A Small Enterprise, where the investment in plant and machinery is more than twenty-five lakh rupees but does not exceed five crore rupees; A Medium-Enterprise, where the investment in plant and machinery is more than five crore rupees but does not exceed ten crore rupees.\u201d<\/p>\n\n\n\n<table class=\"table table-bordered\">\n<tbody>\n<tr>\n<td rowspan=\"2\" width=\"117\">\n<p><strong>Enterprise <\/strong><\/p>\n<\/td>\n<td colspan=\"2\" width=\"495\">\n<p><strong>Investment in plant and Machinery\/Equipment<\/strong> (<em> land and Building excuded)<\/em><\/p>\n<\/td>\n<\/tr>\n<tr>\n<td width=\"223\">\n<p><strong>Manufacturing Enterprises<\/strong><\/p>\n<\/td>\n<td width=\"272\">\n<p><strong>Service Enterprise <\/strong><\/p>\n<\/td>\n<\/tr>\n<tr>\n<td width=\"117\">\n<p><strong>Micro<\/strong><\/p>\n<\/td>\n<td width=\"223\">\n<p>Up to Rs.25 lakh<\/p>\n<\/td>\n<td width=\"272\">\n<p>Up to Rs.10 lakh<\/p>\n<\/td>\n<\/tr>\n<tr>\n<td width=\"117\">\n<p><strong>Small <\/strong><\/p>\n<\/td>\n<td width=\"223\">\n<p>Not less than Rs.25 lakh and up to Rs.5 crore<\/p>\n<\/td>\n<td width=\"272\">\n<p>More than Rs.10 lakh and up to Rs.2 crore<\/p>\n<\/td>\n<\/tr>\n<tr>\n<td width=\"117\">\n<p><strong>Medium <\/strong><\/p>\n<\/td>\n<td width=\"223\">\n<p>More than Rs.5 crore and up to Rs.10 crore<\/p>\n<\/td>\n<td width=\"272\">\n<p>More than Rs.2 crore and up to Rs.5 crore<\/p>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_the_source_of_finance_for_small_businesses\"><\/span>What is the source of finance for small businesses?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>There are various types of source of finance for small businesses. Finance depends upon the size of business. Very first step is to figure out that how much money is required for the business. The source of finance for small business includes; <\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" width=\"606\" height=\"255\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/03\/image-64.png\" alt=\"finance for small businesses\" class=\"wp-image-5590\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/03\/image-64.png 606w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/03\/image-64-300x126.png 300w\" sizes=\"(max-width: 606px) 100vw, 606px\" \/><\/figure><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_Micro_Finance_Institutions\"><\/span>What are the Micro Finance Institutions?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Institutions\nthose have micro financing as their main operations are known as Micro- Finance\nInstitutions. Such Institutions mainly aims to offer microfinance services to\ndifferent sectors. Micro Finance institutions are the financial companies which\noffer small loan services to the people who cannot avail banking services.&nbsp; <\/p>\n\n\n\n<p><strong><em>We have\n3 types of institutions which offer micro finance services; <\/em><\/strong><\/p>\n\n\n\n<ul><li>Credit Unions <\/li><li>Non \u2013 Governmental Organisation<\/li><li>Commercial Banks&nbsp; <\/li><\/ul>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" width=\"579\" height=\"336\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/03\/image-65.png\" alt=\"types of institutions which offer micro finance services\" class=\"wp-image-5591\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/03\/image-65.png 579w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/03\/image-65-300x174.png 300w\" sizes=\"(max-width: 579px) 100vw, 579px\" \/><\/figure><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_Micro_Finance\"><\/span>What is Micro Finance?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li>It is also known as Microcredit, a way to provide finance facility to the small business owners;<\/li><li>Mostly, Microfinance is providing loans, credit access, insurance policies etc;<\/li><li>&nbsp;A micro-credit corresponds to a credit of low amount destined to people having little or no income.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Goals_of_Microfinance_Institutions\"><\/span>Goals of Microfinance Institutions<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>Main\nobject of MFI are as following;<\/em><\/strong><\/p>\n\n\n\n<ul><li>MFI works as financial institution that helps\nin the development of sustainable community;<\/li><li>Further, MFI offers support to the lower section\nof the society;<\/li><li>Figure out the options available to help abolish\npoverty at a faster rate;<\/li><li>Work upon generating self-employment opportunities\nfor the underprivileged;<\/li><li>Empowering rural people by training them in\nsimple skills so that they are capable of setting up income generation\nbusinesses.<\/li><\/ul>\n\n\n\n<p><strong><em>In\nIndia microfinance operates through two ways which are;<\/em><\/strong><\/p>\n\n\n\n<ul><li><strong><em>SHG \u2013 Bank Linkage Program<\/em><\/strong><em> <\/em><\/li><\/ul>\n\n\n\n<p>SHG is\nthe acronym to self \u2013help group. Self help groups are usually group of 10 to 20\nlocal men or women. It is bank \u2013 led microfinance channel initiated by NABARD as\nan Action Research Project in 1989. Once the group is created, members make\nsmall saving contribution in group periodically, until enough capital in the\ngroup is saved for starting lending procedure. Further, these groups get linked\nto banks for opening saving account and for future credit requirement. Such\ngroup receives credit from banks after assessing of their credit worthiness. <\/p>\n\n\n\n<ul><li><strong><em>Micro Finance Institutions (MFIs)<\/em><\/strong> <\/li><\/ul>\n\n\n\n<p>Micro\nFinance Institutions (MFIs) plays an important role in helping financial\nincorporation and thus helping the poor with finance. It ranges from small\nnon-profit organizations to larger banks.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_main_features_of_MFIs\"><\/span>What are the main features of MFIs?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul><li><strong><em>Small\nscale borrowers:<\/em><\/strong> <\/li><\/ul>\n\n\n\n<p>A micro\nfinance provider generally provide loan to low income customers, along with the\nperson who is underemployed, or those who have unofficial family business such\nas small traders.<\/p>\n\n\n\n<ul><li><strong><em>Credit\nrisk investigation:<\/em><\/strong> <\/li><\/ul>\n\n\n\n<p>Records\nrelated to loan are generally kept loan officers from his stops at debtor\u2019s\nhome and business. Debtor usually lack official financial statement, thus loan\nofficer help in keeping records using awaited cash flows, payback schedule and\ncredit amount.<\/p>\n\n\n\n<ul><li><strong><em>Utilization\nof security:<\/em><\/strong> <\/li><\/ul>\n\n\n\n<p>Such\nlenders usually do not have proper security conventions requested by bank;\nmainly they need to take care of financial organization. Such institutes are\nvalued by lender.&nbsp; <\/p>\n\n\n\n<ul><li><strong><em>Credit\napproval and checking:<\/em><\/strong> <\/li><\/ul>\n\n\n\n<p>Micro\n\u2013lending institutions have the tendency of great degree of circulated process,\nloan authorization by loan committee. They strongly rely upon the skill and\nreliability of loan officer along with this from executive they require precise\nand timely information. &nbsp;<\/p>\n\n\n\n<ul><li><strong><em>Controlling\ndebts;<\/em><\/strong><\/li><\/ul>\n\n\n\n<p>Mainly, loan officer perform the supervising, as information related to customer is essential for valuable collection. <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/msme-form-1-filing-procedure\/\">MSME Form 1: Know The Procedure to File, Due Dates and Penalties\n<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_the_role_of_microfinance_in_funding_small_and_medium_enterprises\"><\/span>What is the role of microfinance in funding small and medium\nenterprises?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>India is a developing country, where rural economy is the backbone. In developing countries like India Microfinance institute plays the significant role towards alleviation of poverty, and further bettering the economic condition. Micro small and medium enterprises have been the main source of employment and livelihood of a big section of society in devolving countries.&nbsp; However, the financial need of MSME are been fulfilled by <a href=\"https:\/\/corpbiz.io\/microfinance-company-registration\"><strong>Microfinance Institutions<\/strong><\/a>. MFIs become solely instrumental in capitalizing much small business for their growth. <\/p>\n\n\n\n<p><strong><em>&nbsp;Through following ways microfinance institutions help in funding MSMEs;<\/em><\/strong><\/p>\n\n\n\n<ul><li><strong><em>Credit Facilities are easily approachable &#8211;\n<\/em><\/strong><\/li><\/ul>\n\n\n\n<p>&nbsp;For MSME microfinance institutions serve as\nthe primary credit and lending platform. MFIs not only provide lending facility\nto low income individual but also to the medium enterprise. Accessing to loan\nin MFIs is much easy from other organized financial sector.<\/p>\n\n\n\n<p>Moreover,\nmost of the institutions provide loans with affordable rate of interest along\nwith simple procedure and less documentation. <\/p>\n\n\n\n<ul><li><strong><em>Inclusive Policies<\/em><\/strong><\/li><\/ul>\n\n\n\n<p>Small\nenterprises generally provide employment to unskilled and semi skilled\nlaborers, who are from the weaker section of the society. The MFIs lender\nfocuses towards these section and work on developing them economically by\ndeveloping simple business models and policies. <\/p>\n\n\n\n<ul><li><strong><em>Help in business expansion <\/em><\/strong><\/li><\/ul>\n\n\n\n<p>Micro financers\u2019\noffers blueprint for business expansion and also provide assistance for\ncarrying their operations. With the help of aid MFIs providing to MSME, they\ncan increase the number of their outlets and can become contenders in market. <\/p>\n\n\n\n<p>Through\nthis way, Micro financer can easily recover their loan, and can lend to the\nnext lender. Therefore, by allowing MSMEs to use their funds, can increase\ntheir productivity and also increase profits in the process. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In order to support small enterprises, MFIs are working to make their services better, by the way of understanding unique needs of MSME. They are tailoring their services and working toward making the process much easier so that, MSME can easily avail their services. With the help of management MFIs can create client concentric approach, with hiring knowledgeable and dedicated staff. <\/p>\n\n\n\n<p>In devolving nations like India and other nations, the concept of micro finance loans and micro finance institutions has been embraced. Now, Micro finance lending has become the lifeline for the MSME. Such Institutes help many deprived sections of the society, so that they can become able to integrate with the main stream.  <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/rbi-extends-one-time-restructuring-scheme-for-msme-loans\/\">RBI Extends Deadline for One \u2013 Time Restructuring of MSME Loans<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Micro Finance Institutions are the main source of funding for the MSME and small entrepreneurs, in case where they can&#8217;t access banking or any other related services. Microfinance provides assistance to the poor section of society to overcome poverty and helps in economic development. MFI not only provides credit to MSME, but also includes other [&hellip;]<\/p>\n","protected":false},"author":9,"featured_media":5592,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[176],"tags":[434],"acf":{"service_id":"71"},"authorName":"Shailza Sharma","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2019\/10\/IMG-20190927-WA0001-150x150-22.jpg","authorDescription":"Miss Shailza Sharma, BA. LLB graduate from Himachal Pradesh University. She holds an experience of 2.5 years in various Legal companies and organizations.","postViews":18897,"readingTime":5,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/5589"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=5589"}],"version-history":[{"count":18,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/5589\/revisions"}],"predecessor-version":[{"id":12556,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/5589\/revisions\/12556"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/5592"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=5589"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=5589"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=5589"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}