Lending Process by Microfinance Company

Microfinance institutions are the oldest financial institutions in the world but as per the time they are adopting the changes and have started adopting various credit models. Microfinance services are provided with different methods in India. A total of 14 models are existing in India. They include the following:

• Associations
• Bank guarantee
• Community Banking
• Co-operatives
• Credit Unions
• Grameen Group
• Individual intermediaries
• Small Business
• Village Banking

In actuality, these models are lightly associated with each other and most of the good and sustainable microfinance institutions have features of two or more models in their activities.

The basic methodology adopted by the commercial microfinance company in India was innovated by Grameen Bank and later improvised by several players. This methodology involves the following elements:

• Identify the potential customer
• Organize the potential customers into groups, so that they can address the issue of information asymmetry and lack of collaterals by transferring what could be an individual liability into a group liability and hold the group morally responsible for repayment – through a process of the public oath.
• Have standardized products, standardized operating systems and enforce discipline; ensure that the exceptions were dealt with severely

A different institution in the formal and informal sector has successfully tried these models. Though these models have their own specific strengths and weakness which have demonstrated to provide financial services to the unorganized sector. Most of the Microfinance institution offers credit on a solidarity group lending basis without collateral