An era of micro loans in India

Sucheta Mahapatra | Updated on June 11, 2021

Today, thanks to technology, non-banking financial groups provide easy and hassle-free loans online

The concept of micro-finance came into existence way back in the 1970s when banking entities like the Grameen Bank of Bangladesh under the guidance Muhammad Yunus, often known as the pioneer, began developing micro loans for the poor and the needy.

In India, micro-finance saw its roots in the form NABARD which was developed taking inspiration from the micro-financing reforms in Bangladesh. Additionally, micro-financing was also developed for rural and women development through SEWA (Self-Employed Women’s Association) in Gujarat, back in 1974.

Several other such associations then grew to provide loans that were easy to procure and required minimum documentation. It was understood that micro loans or micro financing was an important tool in uplifting the weaker sections of the society, thereby contributing to the escalation in the growth metrics of the Indian economy.

What began in the 1970s as a micro-credit system providing benefits to several individuals in India, slowly altered into a ‘financial system’ mechanism which enabled everyone from rural to urban population to gain access to the micro-loans system in India. This financial system was not just limited to banking entities and NGOs but further expanded to non-banking financial entities that developed a strong mechanism to provide loans that needed minimum documentation with no lower limit for the amount of loan required.

With the current scenario of economic growth in India, banks shy away from providing loans to the economically backward section of the society owing to higher risks. But this is not the case with micro loans offered by non-banking financial groups that provide easy and hassle-free loans online.

Automated process

The process is completely automated and with the help of the application of Machine Learning in the loan procurement and disbursal process on these loan lending platforms, the companies can easily access and analyse the borrower’s vast digital footprint helping them to evaluate the loan repayment capacity of an individual. The technological term for this form of data is ‘alternative data’ which is faster to process, unlike the traditional credit score.

Additionally, the high internet penetration and smartphone availability have made the Indian audience more aware about the easy process of micro loan procurement. Today, neither the loan provider nor the borrower need to meet in person to close a loan request. With the help of technology, the entire process happens through an automated process without the need for a banking expert to assess the documents and data.

In terms of customer support, ‘bots’ have been specifically designed to answer all the queries of the borrowers with a single click. With this rapid development and digitisation, there has been a prominent growth in micro loans acquired by the common man, be it an individual or an entrepreneur trying to build a strong career for themselves.

The main objective that micro loans fulfil for a developing country like India is its ability to foster the progress of not just an individual but the nation as a whole. It enables an individual with the financial support to develop his/her journey of transforming from a job seeker into a job provider which in the longer run opens avenues for thousands of other individuals, thereby leading to the growth of the Indian economy.

Micro loan helps the unorganised sectors/businesses grow without the need for waiting for years to procure a loan based on their income levels or savings.

The writer is MD India, Branch Finance Personal App

Published on June 11, 2021

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