What is Micro Finance Institution?
Simply put, a microfinance institution is a type of NBFC that typically offers loans and other financial services to underprivileged groups in society. They typically function by making small loans to low-income urban and rural residents.
Banks give the money to MFIs, and the latter then use group lending to lend to low-income people.
Some MFIs that meet specific requirements are now subject to regulation and oversight by the RBI. Too stable MFIs are the key goal.
When applying for the license, the NBFC-MFI must meet the following requirements:
- No deposits shall be accepted by NBFC-MFI. A non-deposit-taking NBFC ought to be used.
- keep NOF at least at Rs. 5 crore
- If an NBFC-MFI is registered in the nation’s North Eastern Region, it must retain Rs. 2 crores:
- “Qualifying assets” must represent at least 85% of the company’s net assets.
- A minimum of 50% of the loan should be used for profitable endeavors.
Loans made by NBFCs that are in compliance with requirements:-
- Without any form of security, the loan must be made.
- Borrowers with a rural household yearly income of no more than Rs. 1,000,000 are eligible for loans from NBFC-MFI.
- Borrowers with family incomes of up to Rs. 1,60,000 in urban and semi-urban areas are eligible for loans from NBFC-MFI.
- The borrower’s total debt cannot be more than Rs. 100,000. Loans used to pay for medical and educational costs, if any, shall not be included in the borrower’s total debt.
NBFC vs MFI
- When NBFC and MFI are compared, NBFC performs banking services on a lesser size than banks, and MFI operates on a lower scale than NBFC.
- In the lack of banks in rural regions, NBFCs serve as a substitute for banks by carrying out similar tasks.
- MFI stands for microfinance institutions, which are even smaller than NBFCs in terms of scale.
- MFI offers extremely tiny loans to the socially disadvantaged.
- Giving disadvantaged people and self-help organizations small loans of between 10,000 and 20,000 rupees is the primary goal of microfinance.