The role of microloans is to provide a small amount of loan to the required personnel. A bank can disburse a certain amount to multiple people, and that will reduce the risk of the banks and NBFCs as it gives lower NPAs, and for a person, it’s easy to pay out as the loan amount is quite lower and a person can use that fund to get employment.
From the borrower’s point of view, a person who needs a micro-loan can easily access the fund with less personal data and get the funds disbursed quickly to their bank account. Here, an individual can ditch the traditional banking channels, where an individual needs to do a lot of paperwork.
In this blog, we will look at the target market of microloans and will observe how these loans help small businesses and entrepreneurs to start economic activity and help to do job creation for them.
- Propagating Financial Inclusion
The first aspect is to support financial inclusion, and there are loan DSA partners who can help the borrower get the best deal by suggesting the right bank or NBFC as per their financial status and giving them the loan offers that are best for their financial stability.
Previously, in the rural and town centers of a state, a person couldn’t find access to traditional banks, and a loan of a smaller amount was not entertained as banks used to deal with a large customer base. Here comes the use of the right financial tool, such as a microloan, that helps a person avoid loan sharks, and through that, one can get the most out of their work.
- Helps to generate Business Growth
The next requirement that a microloan fulfills for a person and a small business owner is that it helps to promote their business growth and through that, owners can take their ventures to the next stage. In other cases, a person can use the fund to keep that as their working capital and also to make payments, which are essential for the growth of the business.
It also helps a business individual to invest in their inventory. Through that, they can initial a purchase order, which helps to stabilize the cash conversion cycle of the business, and thus, a business can have a better workflow for itself.
- Work Towards Women Empowerment
The next use case of the microloan is for women’s empowerment, where a woman can get a fund by creating a bank account, and it is a great souce for the women to create employment for themselves. In rural India, there are a lot of women who are experts in the handicraft business, and through that, one can start a small SHG (Self Help Group) that is essential in meeting the requirements of that organization.
Microloans play a key part in those settings as a higher loan amount gets divided between the members of the SHG, and all the members then pay a little in interest and can close their loan account by making systematic payments.
- Helps to Do Community Development
When small businesses start to thrive in a particular community, then in that case a person can get the locals of that area at work, and that helps to revive the economy. It is possible only through the microlending possibilities of the banks and NBFCs in that area, which can help to make that area an economic sector, and that will turn out best for the entrepreneurs in that region.
Here, the borrower can use the best app for DSAÂ to become DSA members themselves and facilitate microfinancing or to find the local DSA in the community that can accurately guide the borrower about the loans and help them to get the best one at lower interest rates.
- Reduces the Risk to Both Parties
In the case of microloans, the risk mitigation process is done accurately. A person can get the best out of themselves as they are only taking a small amount of loan, which they can refund easily. For the banks and NBFCs also, the risk is spread, and that reduces the chances of major defaults, which was always the risk in wholesale banking.
These are some of the use cases of microlending, and people are getting benefits of this for businesses or other purposes, and for the banks, its quite less risky.
