Mfin Full Form [Definition, Role, Objectives]

At the outset, let us start with decoding the Mfin full form. MFIN stands for Microfinance Institutions Network, an association for India's leading microfinance institutions.

MFIN, the representative body of Non-Banking Financial Companies (NBFC) and Microfinance Institutions (MFI), was founded in 2009 to help economically underserved communities build sustainable livelihoods and achieve financial freedom.

MFIN functions as a Self Regulatory Organisation (SRO) to ensure compliance (of its member organisations) to the regulatory guidelines and the codes of conduct.

In other words, MFIN stands for good governance, protecting the economic rights of the client. Besides, the Microfinance Institutions Network (Mfin full form)  also works on market intelligence and analytics to help the decision making of its (MFIN) stakeholders. As a result, MFIN was recognised by the RBI as an SRO in 2014.

But before we proceed further to know more about the functioning and the role of MFIN as an SRO, let us understand microfinance and what precisely a Self Regulatory Organisation does.

Microfinance (also called microcredit) is a banking service specially designed for the unemployed, low-income individuals or groups who cannot avail of regular banking facilities. Microfinance has enabled several marginalised people access to high-quality financial products and services.

The Pattern of financing by the micro financiers is similar to banking, and loans carry interest with specific repayment plans. However, the interest rates, repayment options, requirement of security and mortgages are different from the conventional banking regime.

An SRO is a voluntary body of the industry participants which sets its own rules for fair conduct of the members in terms of standardisation of industry practices. Most importantly, an SRO helps its members follow the various guidelines of the principal regulator, the Reserve Bank of India (in the case of India).

Microfinance in India - channels:

Two primary channels:

A) Self Help Group Bank Linkage (SHG-BLP)

An SHG is an intermediary financial committee typically composed of ten to twenty-five women. SHGs are a significant microfinance channel in India, primarily anchored by NABARD (National Bank for Agricultural and Rural Development)

B) Microfinance Institutions

NBFCs and MFIs under the Microfinance Institutions Network (Mfin in full form) comprise the other channel.

Today, we will explore the different aspects of Microfinance Institutions.

MFIN: An Overview

The Microfinance Institutions Network (Mfin full form)  has a network of 13 state chapters and over 350 district forums in India. Besides these state and district units, the association engages actively with various financial organisations, regulating authorities, among others, to positively impact the mission of microfinance in general. The association also works for improving the operational efficiency of the process of microfinancing by its members.

MFIN reports to the RBI quarterly on industry information, financial trends.

MFIN: Achievements and Contribution

The creation of the Microfinance Institutions Network (Mfin full form) has raised the service level of the industry in general, benefiting the low-income segment of society.

• MFIN represents the supply side providers in the industry (various micro financiers) and ensures the protection of borrowers' interests
• Creating a responsive business ecosystem
• Helping low-income clientele to overcome economic distress under crises like personal losses, natural disasters, economic downturns and more
• Developing a Code of Conduct focussed on customer protection
• Designing a Code of Responsible Lending
• Creating a surveillance system to track malpractices and take corrective actions
• Customer education on their rights
• Starting an industry-level Customer Grievance Redressal Mechanism
• Microfinance in India

Microfinance in India started in the '90s. The industry attracted newer players regularly, and the entry of several startups brought in large scale private capital to the microfinance business. The resultant growth fuelled intense competition, and specialisation became the service differentiator.

Challenges around customer protection and many other issues raised the need for regulation. The RBI stepped in with specific regulatory guidelines dedicated to customer protection. As a result, SRO's like the Microfinance Institutions Network (Mfin full form)  became more effective, leading to the industry's overall success.

Microfinance in India: Highlights

• The majority of the loans (over 90%) are provided through the Joint Liability Group **
• Loans are Collateral free
• Primary recipients (of loans) are women from low-income households
• The average value (of loans) is Rs 40000; loans can vary from Rs. 20000 to Rs. 150000 Lakhs
• The supply-side of the industry includes multiple lenders (NBFC-MFIs, banks, and other  specialised institutions has a presence in about 600 districts of India
• In terms d institutions)
• The area-wise spread for disbursement of loans is over 75% rural, 25% urban
• Excellent repayment record of the industry
• Over the years, NPA (Non-performing Assets) has remained under 1%

(** JLG or the Joint Liability Group lending model typically consists of five to ten individuals; while loans are taken individually, members in the group support each other and repay loan instalments if a particular member is in difficulty.)

Overview of the Indian Microfinance Industry: Key data

(Data as of 30.06.2021: MFIN India website)

Microfinance: Advantages and Disadvantages

Advantages

• Collateral-free loans
• Fast disbursements help beneficiaries to meet the urgent need of funds
• Promotes self–sufficiency
• Portfolio of loans –besides emergency credit, loans are also given for house building, business working capital.
• Improves social bonding at a local level through self-help and joint liability groups

Disadvantages

• The maximum loan limit is small
• High-interest rate: with MFIs' depending on the third-party borrowed capital, there is no scope of offering low-cost loans

Microfinance: Interest rates in India

Microfinance companies perform a crucial role in poverty elimination by providing loans to the economically weaker sections without security. However, unlike banks, MFIs arrange their funds through private equity. Therefore, interest rates remain on the higher side.

The interest rate depends on factors like the quantum of the loan, repayment period, and purpose of the loan.

In general, loans below Rs.25000 usually attract interest @ 22 to 25% per annum.

Loans above Rs 25000 is @ 19 to 23%

Some emergency loans for medical purposes, if repaid within one year, maybe available at 10 to 12% interest with some lenders.

Have an issue with microfinance or need some more information?

You can contact the Microfinance Institutions Network (Mfin full form)

Mfin gives you the name of an influential association which monitors the MFIs in India. The Microfinance Institutions Network works towards the robust development of microfinance in India. Its (MFIN) objective is to bring economically marginalised people into mainstream finance for growth and development. Therefore, to a large section of the poor looking for self-reliance, the expanded Mfin stands for an umbrella of protection and support.

Stay updated with new business ideas & business tips with OkCredit blogs in English, Hindi, Malayalam, Marathi & more!
Download OkCredit now & get rid of your bookkeeping hassles.
OkCredit is 100% Made in India.

FAQs

Q. Who controls MFINs?

Ans. The Reserve Bank of India (RBI) regulates microfinance companies. The operative framework for microfinance companies (RBI-determined) provides safeguards against dominance by the MFIs and ensures an upper limit on lending rates and margins.

Q. How to find out the rate of interest charged by an NBFC-MFI?

Ans. As per the Reserve Bank of India guidelines, all microfinance institutions must display the effective interest rate on the day (or the period) in their offices and websites. The dealing representative is also required to specifically brief a customer of the interest rate. For any irregularities, one can approach the concerned SRO, the Microfinance Institutions Network (Mfin full form).

Q. Is there a processing fee for a microfinance loan through an NBFC-MFI? What about the prepayment penalty?

Ans. Processing fees are service charges, and generally, MFIs charge fees up to 1% of the gross loan value as processing fees. The regulatory guidelines do not permit charging of a prepayment penalty against settlement of the loan amount.

Q. What is the maximum amount of microloan that can be availed?

Ans. The RBI regulations stipulate a maximum amount of Rs.60000 to 80000 for a single loan seeker in the initial cycle. The limit extends up to Rs.1 Lakh for subsequent lending cycles.

Q. What is the main aim of microfinance?

Ans. The objective of microfinance is to provide finance to help people meet emergency financial needs, promote self-sufficiency and entrepreneurship.