Microfinance System refers to an array of financial services, including loans, savings and insurance, available to poor entrepreneurs and small business owners who have no collateral and wouldn’t otherwise qualify for a standard bank loan.

Most often, microloans are given to those living in still-developing countries who are working in a variety of different trades, including carpentry, fishing, transportation etc.


Features of Micro finance

▪ An essential part of rural finance

▪ Deals in small loans

▪ Caters to the poor households

▪ One of the most effective and warranted Poverty Alleviation Strategies

▪ Supports women participation through financial literary and inclusion

▪ Provides an opportunity to become an entrepreneur

▪ More service-oriented and less profit oriented

▪ Meant to assist small entrepreneurs under all categories



Micro financing is meant for reaching out to the unbanked populace of the country by enabling them to become entrepreneurs in a small way.

▪ Micro financing produces many benefits for poor or low- income households. Banks normally are not equipped to handle a large number of small loans. Hence, a huge number of citizens at the lower end of the pyramid are not supported by the existing banking system.

▪ Due to non-existent manpower and structural support, regular commercial banks cannot extend loans to those with little or no assets to offer as collateral. Hence, commercial banks do not engage in providing lesser value loans. This vacuum has been bridged through microfinancing institutions.

▪ Microfinancing is based on the philosophy that little help given to the right person at the right time enables him to become an entrepreneur, and increase the national wealth along with improving his own personal financial health.

▪ Dependency on others to get employed is reduced as there comes a host of small entrepreneurs who add value to the economy through their agricultural activities, manufacturing, trading and providing services.

▪ Overall, the benefits outline that the microfinancing initiative is set out to improve the standard of living of the less privileged section of the society.