Microfinance Products and Delivery Models
Product menu
Microfinance products are built around small, frequent cash flows. Credit includes working capital, agriculture and livestock, micro-enterprise, emergency, education and housing loans. Savings are offered through banks, cooperatives and SHGs; NBFC-MFIs are non-deposit-taking and cannot accept public deposits. Insurance is mainly credit-life, health and crop cover; remittance and pension products complete the menu. Good product design matches repayment frequency to income frequency.
Delivery models
- SHG-Bank Linkage: 10-20 members save first, lend internally, then banks lend to the group. Savings and peer pressure come before credit.
- Joint Liability Group (JLG): 4-10 borrowers, joint liability, no savings prerequisite; used by banks and MFIs for collateral-free lending.
- Individual lending: larger tickets, cash-flow appraisal and relationship management; common in urban and established micro-enterprises.
- Business correspondent/agency banking: banks use agents to reach remote customers; technology handles KYC and transactions.
- Digital/fintech lending: e-KYC, mobile repayment and algorithm-based limits; convenient but raises conduct, data and over-indebtedness risks.
Worked example
Eight tailors each need ₹30,000 for machines and raw material, have no collateral and can repay weekly. A JLG of eight fits: joint liability lowers bank cost, weekly collection matches cash flow, and the group screens members. If one tailor later needs ₹3 lakh for a readymade-garment unit, individual lending with cash-flow appraisal is more suitable; forcing it into a ₹30,000 group template would under-finance the business and weaken group discipline.
Traps
Do not assume an MFI can take deposits; NBFC-MFIs cannot. Do not treat an SHG as only a borrowing club; savings-first is central. Do not say JLG loans need collateral. Do not ignore conduct risk in digital lending, where high-speed disbursal can create multiple borrowing.