Why Microfinancing is Important to Small Business?

Roshni Khatri

15th Apr'22
Why Microfinancing is Important to Small Business? | OpenGrowth

Microfiancé is just like microcredit for small businesses and provides access to the capital. It is often seen that the small entrepreneurs do not have the access to the traditional sources of financing and it is because of the risk associated with a new venture. In short, it is hard for new start-ups or small businesses to access finance or loan from financial institutions, hence they don’t get the required funds for growing their business.

Microfinancing is access to the savings bank account, providing loans and credits to the small business owners and they should know the basics of small business loan to support their venture. As microfinance is financial assistance that is provided to the new start-ups to improvise their goals and business performance. It allows the entrepreneurs to avail of the loans at reasonable rates and is consistent with ethical business lending. 

We all know that finance is like blood for a business, if a venture gets adequate financial assistance then it can grow faster and establish itself effectively. So nurturing a new startup, there is a significant role of microfinancing. 

 

How Microfinancing Works?

Microfinance fulfills the need for initial capital that is required to operate a business successfully. This helps the ventures in financial independence and operating the trade activities efficiently. The loans which are provided to the small entrepreneurs demand no collateral but the rate of interest may be high. 

Micro Financing includes the terms like micro-savings, microloans and insurance. The microfinance institutions provide small loans to the new setups and help them in growth and development. You might wonder why the traditional paths are not opted by the small businesses, Right!

The reason is many entrepreneurs who have business ideas can not avail of the facility of traditional loans, especially in developing nations. Therefore to execute the business idea, many ventures rely upon microfinancing to give a boost and start their trade operations. Microinsurance provides the funds at a lower rate of interest to the borrower. 

It is often seen that the people who avail the microloans, first get the training about the bookkeeping, cash flow management and other relevant aspects. This helps them in making a connection between the investments and returns. 

 

How Microfinancing Works?

 

Significance of Microfinance

Microfinance has a vital role in giving a quick start to your business. Several people have the idea but they do not have enough financial sources to initiate the business. 

So microfinance is a boon for those as they can avail of financial assistance in the form of microfinance and can execute their business idea into reality. Sometimes the rate of interest can be high in these sources, therefore the entrepreneurs can go to their family and friends for financial assistance.  

Thus microfinance helps the entrepreneurs to invest the borrowed funds in their business and as an outcome invests in themselves too. 

 

Who Can be The Beneficiaries?

Microfinance is a scheme that is available for every entrepreneur whether it’s male or female. The reason is the easy and quick access and common terminology that is followed in almost every place. Although the facility is for all still the microfinance facility is usually used by the women entrepreneurs. They are the base of society and financial wellness is important for women. Microfinance supports the dreams and business ideas of these women to help them execute their venture plans. 

In other words, women microfinance borrowers are high, it is revealed as per the data of 2018, that 80% of women borrowers availed the finance facility through this mode. As per the data of 2019, it was revealed that 65% of women borrowers are from rural areas. It indicates that the women who are from limited resource areas have access to this facility to start their entrepreneurship and be independent.

Thus the microfinance industry is growing very fast and has established itself as the best source of finance.

 

Benefits of Microfinance

Since the world is facing economic recessions so microfinance has become a solution for people to improve their living conditions. There are several benefits of the micro-financing and these are as under:

Benefits of Microfinance

Provides Access to Credit

Most banks do not provide the loan until collateral is not deposited to them, so it is a crucial situation for many people who have to initiate their own business as they don’t have enough capital or sources to mortgage. With this, they have to know about the business startup loan for a successful implementation of the business idea. Microfinance has provided the opportunity to access the small credits from these resources. It also helps in stopping poverty at a rapid rate. 

Serves the Downtrodden Areas

The microfinance facility is provided to women, people with disabilities and people who are unemployed. In other words, those who are not able to fulfill their basic needs can also take the assistance from microfinance tools and can start their business by enrolling themselves in an occupation. 

Better Loan Payment Rate

Traditional banking products ask for a higher rate of interest. The rate of interest on microfinance is lesser than that of bank loans. With this, several women borrowers avail loans from microfinance modes. This is the reason that microfinance targets women as they benefit from it and repay the loan amount easily. 

Provides the Opportunity for Education

In many developing nations, the education level is low and it is due to the poverty level or unsound financial condition of the families. With the help of microfinance, people can avail loans easily and spend them on the education of their children. As this eventually will make them qualified and working professionals. 

Thus Microfinance has many advantages and it is the most convenient mode of financing too. We cannot ignore the fact that many people have availed of this facility and have started their businesses successfully. 

 

Conclusion

It is not about money, sometimes stability in the economy also boosts the growth of a nation. If you have to give your helping hand in economic development then you must go for it. This financial tool is valid for all and can provide access to a better life and livelihood. In the current scenario, the business sector is grooming rapidly, this all is because of quick and easy financial assistance and microfinance is one of them. 

If you also have a business plan and do not have a platform for funding it, then microfinance is for you. 

Now start your business and give a spark to your entrepreneurial skill!

For more blogs on the financial aspects, stay tuned with us!


We at OpenGrowth, are committed to keeping you updated with the best content on the latest trendy topics from any major field. Also, both your feedback and suggestions are valuable to us. Do share them in the comment section below.

A keen observer, who loves to spend time with nature. A fun loving person, enjoys to explore the new aspects of life. Passionate about reading and learning new things. Roshni is dedicated towards her work and has worked in different professions.

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