Things to Consider Before Applying for Micro Loans in India

The Government of India and RBI has developed several initiatives in partnerships with private limited companies and Micro Financing Institutions (MFIs). The sole motto is to give access to financial support to needy enterprises. 

In India, many small businesses and start-ups struggle to meet their financial needs swiftly due to limited access to financial sources. To resolve such issues, one can opt for micro loans to curtail the crisis and sustain their set-ups. Lenders extend this financial service against a joint-liability model for maintaining repayment discipline and risk of default.

Things to consider before applying for the service

  1. Who can avail it?

If an individual is from any of the below-mentioned categories, he or she can opt for the credit facility.

  • Retailers
  • Self-employed individuals
  • Traders
  • Start-up owners
  • Sole proprietorships
  • Individuals who desire to build a successful manufacturing business
  • Entrepreneurs (women)
  • Consultants
  • Unemployed
  • Workers with minimum wages
  • Minorities etc.
  1. What is the purpose?

People who come across difficulties to apply for business loans can go for micro-financing options. They are curated to boost business growth. A borrower can use the amount for business-related activities like-

  • To start a new business venture
  • Maintenance of daily cash flow
  • To manage working capital requirements
  • Debt consolidation
  • Meet everyday expenses
  • Paying salaries to employees and others
  1. Application procedure

Individuals can visit the official website of any MFI according to their choice and fill up the loan application form. One must attach the documents necessary to avail of the financial assistance. After reviewing the application, lenders will run through the formalities with the respective applicant and disburse the amount to the bank account for the latter. 

Generally, individuals with a lower credit score or no credit history apply for micro loans. However, people with a credit score of 750 or above can opt for business loans from any leading financial institutions.

Prominent NBFCs like Bajaj Finserv extend exclusive pre-approved offers on business loans. To check your pre-approved offer instantly, submit your name and contact details.

  1. Documents needed

Applicants must provide the below-mentioned credentials while applying for micro-financing assistance.

  • Proof of the office address
  • Passport-size photographs of the applicant and the co-applicant
  • PAN card
  • Copy of passport (if available)
  • Ration card
  • Updated application form
  • AOA/MOA/Partner deed certifies copies
  • Repayment record (credit report)
  • Audited financial documents of last two years
  • Bank account statement of last 6 months
  • Pro forma invoice of the equipment that is to be financed
  • Professional qualification certificates for lawyers, chartered accountants, architects and doctors 

This set of documents may vary from lender to lender.

  1. Eligibility criteria

One can avail micro loans under the two scenarios-

  1. The income limit must be Rs.1.25 lakh for a rural household
  2. For urban or semi-urban families, the income limit is Rs.2 lakh
  3. Features of micro loans

Here are certain distinct features of such loans –

  • It is one of the proven ways to reinforce the Self-Help Groups (SHGs) for elevating the economy of the country
  • The repayment tenor is short (typically 12-24 months)
  • No collaterals or securities are involved
  • In general, this loan is paid at higher frequency, usually weekly, bi-weekly or monthly basis
  • Its sole purpose is to generate income

In India, a generous percentage of people still do not have a basic savings account. At some point in life, these people may need financial services for housing, business, education, etc. Micro loans are one of the driving factors promising subsequent business growth on the back of burgeoning economy if India.

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