Microfinance loans are small and unsecured loans. These are given to those low income families whose annual income is up to Rs 3 lakh. For this loan you do not need to pledge any land, property or security. These loans are helpful for starting a small business, meeting emergency expenses or paying children's school fees. It has been specially designed for those people who cannot get a normal loan from the bank.
According to Reserve Bank of India (RBI), microfinance loan is a loan which is given to low income families without any guarantee. If any property or security is taken in exchange for the loan, it will not be considered as a microfinance loan. These may include education loan, emergency loan, agriculture loan, income enhancing loan, consumer product loan and loan for small business.
The limit of this loan can be from Rs 10,000 to Rs 1.25 lakh. The limit for repaying it in installments is 1 to 3 years. There is no penalty for making early payment. If you want, you can repay the loan before time, that too without any extra charges. Apart from this, you can also start weekly, fortnightly or monthly installments in this loan. However, the condition remains that the monthly installment should not be more than 50% of the total household income.
There is no fixed limit on interest on microfinance loan, but the bank or institution cannot charge too much interest. The interest rate is decided as per the policy approved by the board of the institution. This includes the cost, risk and profit of the fund. This means that more interest cannot be charged without any reason.
Only RBI controlled institutions can give this loan. Such as banks and small finance banks, regional rural banks (RRBs), NBFCs and NBFC-MFIs, cooperative banks, self-help groups (SHGs) and NGOs, commercial and payment banks.
