microfinance loans

Are microfinance loans effective?

Microfinance loans are a good source of investment for people with lesser needs. It is a very helpful loan for small businesses, It provides them with the funds they need for setting up or expanding the business. Getting a microloan is simple and the approval takes very less time. The interest rates may be a bit higher than housing loans but considering the loan amount, These interest rates are still satisfactory. One of the best things about microfinance loans is that these loans are collateral free which makes it easier for applicants with lesser or no assets to get the loan.

Other than loans, Microfinance has other features such as microsavings and micro insurance. Microsavings account is a savings account very useful for small businesses because it can be operated with no minimum balance. Micro insurance provides coverage to the borrower of a microfinance loan and has a much lower premium than other insurance policies.

Benefits from Microfinancing :

There are many benefits microfinancing has to offer especially to the ones in need. Some of the major benefits from microfinancing are :

  • It provides funds to the people with lower income, The ones who are neglected by the banks and these small funds can be very crucial to them. 
  • The availability of funds to the borrowers is very quick and the process is a lot faster than the conventional loans.
  • Microfinancing works as a medium to generate employment. By providing loans for small businesses, helps in the establishment and growth of small businesses and also generates employment.
  • It is very helpful in breaking the cycle of poverty by providing initial funds for a business to a person or family facing poverty.  It is good for the future of society in many ways. 
  • In the longer run, Microfinance increases the possibility of getting more investors and taxpayers in the future.


There are many ways through which microfinance benefits people. The need for an account that is operable with no minimum balance is a boon for many people and small business owners who sometimes face problems in maintaining a minimum balance. This is the biggest benefit of a microsavings account. Microfinancing works in direct and indirect ways to support and uplift people facing poverty and unemployment. Microfinance loans are indeed effective and very helpful for people in establishing their businesses and coming out of poverty.

In the rural and underdeveloped areas, People should be made more aware of microfinance and why it is better than taking money from traditional money lenders who charge very high-interest rates. The loan for small businesses provides an opportunity for these business owners to expand the capacity of their respective businesses and provide a better life for their families and a secure future for their kids. This shows the potential and effectiveness of microfinance. The microfinance loans are effective and relevant. They are a source of funds for a huge population that is undeserved and is facing poverty. These amounts may sound small to some people but these small loans are making big differences in the lives of the people who need these loans.