InvestorQ : How do MFIs give loans to borrowers?
Anjali Desai made post

How do MFIs give loans to borrowers?

Manisha Mehta answered.
3 years ago
MFIs or micro finance institutions give loans to the poor sections of our society. This is not an easy task and despite that, MFIs do it with perfection.
The administrative officer, appointed by the MFI has to visit the place, interview the borrowers and analyse their skills. This entire process is time-, energy- and manpower-consuming. Most of the time the financial institutions arrange for all the necessary training to develop them into skilled labour.
Some of the vital aspects considered by MFIs before giving out loans are as follows:
- Duration of loan- Sometimes a loan is given to the borrowers for short duration of time which might range from a few months to a year. The repayment of the loan is done on monthly, weekly or on daily basis.
- Risk factor- The field officer has to conduct a detailed analysis of the repayment capability of the applicants before approving the loan. The repayment ability is assessed on the basis of various criteria and this task is conducted by the officer.
- Education- The field officer also checks the education level of the borrower as to run a successful business education plays a vital role.
- Specialised skill- The borrower should have a complete or a minimum knowledge of the business. MFI expect the borrower to have substantial knowledge of the business he/she is going to pursue.
- Agreement- There will be an agreement between the borrower and the institution providing the loan. The agreement will include repayment procedure and allocation of funds. Both parties have to agree and then the final allocation of funds will take place.