Last updated – 04 Jan 2022
Microfinance term relates to a small amount of credit facility offered primarily to the low-income group, unbanked and marginalized people in rural and semi-urban areas
The microloans support livelihoods in the rural areas where banks are very far and access to formal banking services is remote.
Microfinance helps rural communities, women and people who are involved in agricultural and small business activities.
What are Microfinance Companies
Microfinance companies are non-banking finance (NBFC) companies registered with Reserve Bank of India (RBI) that offer short term loans to people at lower interest rates than primary lenders.
They handhold people with their credit needs like a friend in need and also teach them basic savings & finance skills. Microfinance companies go-ahead to provide loans for personal consumption like house appliances, mobile and cycle loans.
Microfinance companies focus on rural or semi-urban areas where people need money urgently for a short time period usually for a period of 1 to 2 years.
Microfinance companies on one hand work closely with women entrepreneurs for helping them start small tailoring shops, art and craft shops and local produce businesses.
On the other hand microfinance companies make loans to MSME, for housing and starting dairy businesses.
How Microfinance Companies Work
Microfinance Institutions (MFIs) need to have a license from RBI to start their operations. MFIs offer collateral-free loans of up to Rs. 50,000 (in some cases up to 1,00,000) to small businesses or individuals.
You can understand how microfinance companies work with the help of this video.
Microfinance companies have lines of credit from commercial banks which they then offer as microloans. In short, they are funded by the banks and financial institutions.
Microfinance companies charge higher interest rates (20% to 30%) on microloans as compared to banks but the interest rates are still lower when compared to private lenders in the market.
Working Model of Microfinance Companies in India
#1. Self Help Group (SHG)
Self Help Group is an informal group of small entrepreneurs with similar socio-economic backgrounds. Small entrepreneurs including women come together to create a common fund to meet the emergency needs of their business. The SHG is a savings oriented group.
They fix periodic meets, open an account with a microfinance company and save regularly in the fund, and when any group member needs funds, he gets that from the collective savings.
These groups are generally non-profit self-sustaining organizations. The group itself takes care of the responsibility of debt recovery.
Self-help groups get money on credit from the bank like NABARD and SIDBI once they become stable and present a track record of regular repayments of their borrowers.
#2. Joint Liability Group (JLG)
Joint Liability Group concept for microfinance was started by NABARD. JLG is a group of 4-10 small farmers, rural entrepreneurs, people of the same village/locality having the same socioeconomic background.
The JLG is formed with the purpose of availing loan from a microfinance company without any collateral. The JLG is for income generation, activity-oriented groups.
Microfinance companies can finance a JLG in two ways
- Financing to the group directly
- Financing to the individual in the groups
However, in both cases, all members of JLG are responsible for repaying the loan amount.
Here are the 11 Best Microfinance Companies in India 2022
Best Microfinance Companies in India Working as Banks
#1. Bandhan Bank Limited
Earlier Bandhan Bank Limited was known as Bandhan Financial Services Limited, the largest microfinance company based out of Kolkata.
Bandhan Financial Services Limited received the banking license from RBI in April 2014. Presently, Bandhan Bank Limited has 4559 banking outlets helping it reach 2.01 crore customers.
Bandhan Bank Limited still serves the rural and low-income earners and has a total advance portfolio of Rs. 71,846 crore as of 31st March 2020.
The micro banking loans offered are
- Suchana microloan
- Su-briddhi microloan
- Srishti microloan
- Susikhsha microloan
- Samadhan loan
Pros of Bandhan Bank
- Has vast experience in microfinance
- Now offers other banking services
- Dedicate microfinance loans
Cons of Bandhan Bank
- Most of the banking outlets in eastern India
- Also working as a bank
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#2. Ujjivan Small Finance Bank
Ujjivan Financial Services Limited (UFSL) started microfinance operations in 2005. The company received a license from RBI in October 2015 to start Ujjivan Small Finance Bank.
The microfinance based bank still offers a full range of financial services to the ‘economically active poor’. The Ujjivan Bank microloans are under individual loans & group loans.
Ujjivan Small Finance Bank has a diversified portfolio with branches spread across 24 states with a customer base of over 4.9 million.
Pros of Ujjivan Small Finance Bank
- Earlier experience as a micro financer
- Spread across 24 states
Cons of Ujjivan Small Finance Bank
- Most of the banking outlets in southern India
- Also working as a bank
#3. Equitas Small Finance Bank
Equitas Small Finance Bank started the microfinance business in 2007 with 4 branches. In 2015, Equitas received RBI approval for starting a small finance bank.
Equitas Small Finance Bank still caters to the economically weaker section (EWS) and low-income group (LIG). It provides small loans ranging from Rs. 5,000 to Rs. 50,000 for income generation purposes.
Pros of Equitas Small Finance Bank
- Past experience as a micro financier
- Offers net banking, deposits, payments and other banking services
Cons of Equitas Small Finance Bank
- Loan amount limited to Rs. 50,000
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#4. Suryoday Small Finance Bank
Suryoday small finance bank has its genesis in Suryoday Microfinance Private Limited. After eight years of microfinance, the company started its banking operations in January 2017.
Suryoday aims to bring the best banking solutions to the ‘banked’, ‘under-banked’ and the ‘un-banked’ sections of the society and to continue its microfinance lending.
Suryoday works on Joint liability group loans for income-generating activities.
Pros of Suryoday Small Finance Bank
- Previous experience as a micro financier
- Small banking services
Cons of Suryoday Small Finance Bank
- The micro-credit amount is limited to Rs. 52,500.
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Best Microfinance Companies for MSME and Micro Loans
#5. Satin Creditcare Network Limited
Satin Creditcare Network Limited is a Gurugram, Haryana based microfinance company that offers a diversified suite of products to serve the under-privileged segments of the society.
Satin Creditcare Network primarily works on the Joint Liability Group model to provide collateral-free microcredit facilities in rural, semi-urban and urban areas.
The loans offered include solar loans, loans for purchasing cycle, home appliances, mobile, creating water and sanitation facilities.
Satin Creditcare Network Limited has operations in 22 states and reaches 85,000+ villages. Satin offers MSME loans and also finances other microfinance companies.
Pros of Satin Creditcare Network Limited
- Products for personal loan and business needs
- Operations in 22 states
- Loans to other microfinance companies
Cons of Satin Creditcare Network Limited
- Works only on Joint Liability Group model
#6. Annapurna Finance Pvt. Ltd
Annapurna Finance Pvt. Ltd was established in 2009 with the aim to provide microfinance to the interior unserved areas of Odisha. The company addresses the economic necessities of poor women at their doorstep.
Annapurna Finance registered as a microfinance company in 2013 and now offers
- Group loans
- MSME Finance
- Housing Finance
- Micro Credit
- Business loans
Annapurna Finance uses both SHG and JLG models and reaches 1.9 million clients through 718 branches and has a loan portfolio of over Rs. 4000 crores.
Pros of Annapurna Finance Pvt. Ltd
- Microfinance and MSME loan
- Housing finance loans available
Cons of Annapurna Finance Pvt. Ltd
- Operations majorly in the eastern part of India
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#7. Arohan Financial Services Pvt. Ltd
Arohan Financial Services Limited is a Kolkata based microfinance company that is a part of the Aavishkaar-Intellecap Group.
Arohan Financial Services is on a mission to empower the underserved through a range of financial services. The company has an outstanding loan portfolio of Rs. 4857 Crores and operates through 711 branches in 10 states.
Arohan Financial Services offers microfinance loans and also MSME lending services. The loans’ purposes include solar loan, mobile, sanitation, cycle and loans for trade & services.
Pros of Arohan Financial Services Pvt. Ltd
- Microcredit and MSME loans
- Operates through 711 branches in 10 states
Cons of Arohan Financial Services Pvt. Ltd
- Operates majorly in the east and north-east India
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Best Microfinance Companies Focused on Women Upliftment
#8. Muthoot Microfin Limited
Muthoot Microfin Limited is the microfinance arm of the large Muthoot Pappachan Group. The microfinance company provides micro-loans to women entrepreneurs with a focus on rural areas of the country.
Muthoot Microfin Limited works on a joint liability group model of microfinance and caters exclusively to women in lower-income households.
Muthoot Microfin microloans include
- Income-generating loans like for dairy
- Life betterment loans like education, mobile, solar loans
- Health and hygiene loans like water and sanitation loans
Pros of Muthoot Microfin Limited
- Part of Muthoot Pappachan Group
- Focused on rural women entrepreneurs
Cons of Muthoot Microfin Limited
- Limited to only rural women entrepreneurs
#9. CreditAccess Grameen Limited
CreditAccess Grameen was first visualized by Mrs. Vinatha M. Reddy and founded in May 1999 as a project under the T. Muniswamappa Trust in South Bangalore.
Over a period of time, the microfinance activities of the trust were transferred to CreditAccess Grameen company.
The microfinance company caters to the need for timely and affordable credit to India’s poor and low-income households with a focus on women’s upliftment.
CreditAccess Grameen has over 29 lakhs borrowers in 230+ districts and operates through over 900+ branches.
CreditAccess Grameen offers income generation loans, home improvement, emergency and family welfare loans.
Pros of CreditAccess Grameen Limited
- Offers non-financial assistance like workshops
- Dedicated to women upliftment
- 900+ branches
Cons of CreditAccess Grameen Limited
- Focused only on women entrepreneurship
#10. Sonata Finance Private Limited
Sonata Finance is a Lucknow based microfinance company providing financial resources to enable poor women of rural, semi-urban and urban communities.
The microfinance company is developing a scalable and growing business that covers a significant number of poor households.
Sonata Finance has a loan portfolio of Rs. 1600 crores and operates through 488+ branches.
The microloans include both individual and group lending for income generation, sanitation, home improvement, two-wheeler and utility loans.
Pros of Sonata Finance Private Limited
- Various microloan products
- Focused on women upliftment
Cons of Sonata Finance Private Limited
- Most of the outlets in the northern part of India
- Works only on Joint-liability model
#11. Fusion Microfinance Private Limited
Fusion Microfinance aims to provide underprivileged women with economic opportunities to transform the quality of their lives.
The Delhi based microfinance company was set up in 2010 and operates in a Joint Liability Group lending model of Grameen.
Fusion Microfinance offers income-generating microloans and emergency loans to women living in rural & semi-urban areas. They should belong to the marginalized community, whose annual household income is up to Rs. 2 Lakhs.
Pros of Fusion Microfinance Private Limited
- Focused on underprivileged women
- Offers insurance products & financial literacy programs
Cons of Fusion Microfinance Private Limited
- North India based operations
- Loan amount limited to Rs. 60,000
Microfinance companies play a big role in uplifting the rural youth, women and people bringing them the formal channels of credit. Now the village people can get easy loans from microfinance companies instead of depending on the local lenders who exploit them.
Microfinance is a resource through which amenities like sanitation, solar electricity and water can be made available. In short, the microfinance companies are trying to bridge the social and economic gap between rural and modern India.