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TAXAJ Corporate Services LLP - Financial Doctors

Micro Finance Company

Micro Finance Companies are financial companies that provide small loans to people who do not have any access to banking facilities. The definition of "small loans" varies between countries. In India, all loans that are below Rs.1 lakh can be considered as microloans. Although most microfinance institutions are set up in order to target the eradication of poverty as their primary motive, some of the new entrants are focussed on the sale of more products to consumers. Microfinance institutions have been gaining popularity in the recent years and are now considered as effective tools for alleviating poverty. Most MFIs are well-run with great track records, while others are quite self-sufficient. The primary goals of microfinance institutions are the following:

  1. Transform into a financial institution that assists in the development of communities that are sustainable.
  2. Help in the provision of resources that offer support to the lower sections of the society. There is special focus on women in this regard, as they have emerged successful in setting up income generation enterprises.
  3. Evaluate the options available to help eradicate poverty at a faster rate.
  4. Mobilise self-employment opportunities for the underprivileged.
  5. Empowering rural people by training them in simple skills so that they are capable of setting up income generation businesses.

Benefits of Micro Finance Company

  • Micro Finance Company enables the deprived section of the society to reach out to present opportunities - The income accumulation of poor households has improved due to the presence of microfinance institutions that offer funds for their businesses without much of documentation.
  • Micro Finance Company provides easy access to credit - Microfinance opportunities provide people credit when it is needed the most. Banks do not usually offer small loans to customers; Micro Finance Company providing microloans bridge this gap.
  • Micro Finance Company makes future investments possible- Microfinance makes more money available to the poor sections of the economy. So, apart from financing the basic needs of these families, Micro Finance Company also provide them with credit for constructing better houses, improving their healthcare facilities, and exploring better business opportunities.
  • Micro Finance Company serves the under-financed section of the society - Majority of the microfinance loans provided by Micro Finance Companies are offered to women. 
  • Micro Finance Company helps Unemployed people and those with disabilities are also beneficiaries of microfinance. These financing options help people take control of their lives through the betterment of their living conditions.
  • Micro Finance Company helps in the generation of employment opportunities - Microfinance institutions help create jobs in the impoverished communities.
  • Micro Finance Company inculcates the discipline of saving - When the basic needs of people are met, they are more inclined to start saving for the future. It is good for people living in backward areas to inculcate the habit of saving.
  • Micro Finance Company brings about significant economic gains - When people participate in microfinance activities, they are more likely to receive better levels of consumption and improved nutrition. This eventually leads to the growth of the community in terms of economic value.
  • Micro Finance Company results in better credit management practices - Microloans are mostly taken by women borrowers. Statistics prove that female borrowers are less likely to default on loans. 
  • Apart from providing empowerment, microloans also have better repayment rates as women pose lesser risk to borrowers. This improves the credit management practices of the community.
  • Micro Finance Company results in better education - It has been noted that families benefiting from microloans are more likely to provide better and continued education for their children. Improvement in the family finances imply that children may not be pulled out of school for monetary reasons.

 Types of Group by MFI

Micro Finance Companies form several types of Groups for offering credit, insurance, and financial training to the rural population in India:

Joint Liability Group (JLG)

This is usually an informal group that consists of 4-10 individuals who seek loans against mutual guarantee. The loans are usually taken for agricultural purposes or associated activities. Farmers, rural workers, and tenants fall into this category of borrowers. Each individual in a JLG is equally responsible for the loan repayment in a timely manner. This institution does not need any financial administration, as it is simple in nature.

Self Help Group (SHG)

A Self Help Group is a group of individuals with similar socio-economic backgrounds. These small entrepreneurs come together for a short duration and create a common fund for their business needs. These groups are classified as non-profit organisations. The group takes care of the debt recovery. There is no requirement of a collateral in this kind of group lending. The interest rates are generally low as well.

Rural Bank

It has inspired the creation of Regional Rural Banks (RRBs) in India. The primary motive of this system is the end-to-end development of the rural economy. However, in India, SHGs have been more successful as MFIs when compared to Grameen Banks.

Rural Co-Operatives

The resources of poor people are pooled in and financial services are provided from this fund. However, this system had complex monitoring structures and are beneficial only to the creditworthy borrowers in rural India.

How to Form your own Micro Finance Company?

Forming your Own Micro Finance Company can be pretty smooth and quick with Team TaxaJ. All you need is a bunch of people who can be supporting to you and your vision of Entrepreneurship. Always keep in mind, it is essential to have partnered with someone who shares the same idea and passion for your growth as you have. People who come on board just for the sake of profit or fame do not travel on same boat for long. So, we would suggest to collaborate with like minded people and you are good to go. Remember India is still a Developing Nation and we need a lots of Financial Enablers like you. Some of the list of Documents that we require in order to form your Micro Finance Company are:

1. Minimum Two Directors.

    We need Pan Card, Aadhar Card, Photo  of both the Directors.

2. Registered Business Address.

    Electricity Bill of the Premises.

3. Name of your Micro Finance Company.

4. Mail these Documents to connect@taxaj.com

    You can also Whatsapp 📲 at +91-88028-12345

You will get your Micro Finance Company Registered in 7 to 10 Working Days.

Need to Check Credit Information Before Lending?

Are you suffering Losses due to Habituated Offenders Not Paying Back Loans?

Are you still providing loans without any Background verification & Credit Check?

Performing a credit information check before lending a loan, especially for a Micro Finance company in India. It is very important to keep a track on your disbursal and recovery ratio, it is not only mandatory for your companies survival but it also helps to assess about the fraudulent and transparency working nature of your Micro Finance Company. Besides it is also crucial for several reasons:

1. Risk Assessment:
Conducting a credit check allows the Micro Finance company to assess the creditworthiness of the borrower. It helps in understanding the borrower's past repayment behaviour and their ability to repay the loan. This risk assessment is essential to minimize the chances of default and mitigate financial losses for the company.

2. Regulatory Compliance:
Micro Finance companies in India are regulated by various authorities such as the Reserve Bank of India (RBI) and other financial regulatory bodies. These regulations often mandate credit checks as a part of due diligence before extending credit to borrowers. Compliance with these regulations is necessary to avoid legal issues and penalties.

3. Fair Lending Practices:
Conducting credit checks ensures that lending practices are fair and equitable. It helps in preventing discrimination based on factors such as race, gender, religion, or socioeconomic status. By assessing borrowers' creditworthiness objectively, Micro Finance companies can maintain transparency and integrity in their lending operations.

4. Portfolio Management:
Credit checks enable Micro Finance companies to manage their loan portfolios effectively. By identifying high-risk borrowers, they can implement appropriate risk management strategies such as setting higher interest rates or imposing stricter repayment terms. This helps in maintaining a balanced portfolio and reducing overall credit risk.

5. Maintaining Financial Stability:
Extending loans to borrowers with poor credit histories or limited repayment capacity can jeopardize the financial stability of the Micro Finance company. By conducting credit checks, the company can make informed decisions about loan approvals and ensure that they lend to individuals who are more likely to repay the borrowed funds on time.

6. Customer Protection:
While providing access to credit is essential for financial inclusion, it's equally important to protect borrowers from falling into a debt trap. Conducting credit checks helps Micro Finance companies assess whether the loan amount is suitable for the borrower's financial circumstances. It enables them to offer responsible lending products and educate borrowers about financial literacy and loan management.

Overall, conducting credit information checks before lending a loan is crucial for Micro Finance companies in India to mitigate risks, comply with regulations, ensure fair lending practices, manage their portfolios effectively, maintain financial stability, and protect the interests of both the company and its customers.
We, Team TaxaJ work closely with all the Major Four Credit Information Company in India. CIC or Credit Bureau is an RBI-licensed and authorized organization that collects, maintains and analyses the consumer and business credit information of individuals, companies and enterprises across the nation, as provided by the financial institutions on a monthly basis. These Credit Information Companies (CICs) use the consumer’s credit information data, as provided by the lending institutions to generate Credit Information Reports (CIRs) for individuals and Credit Company Reports (CCRs) for companies. CICs further calculates and generates credit scores for individuals and credit ranks for companies, as per their creditworthiness and past credit history.

We at TaxaJ makes sure that our clients have all the relevant data in their hand so that they can make Data enabled decisions before lending a credit or loan. Our enriched Tie ups help the Micro Finance and Nidhi Companies to lend sensibly.