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Microfinance Frontier

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Microfinance is commonly associated with easy access to financial services, especially designed for the poor, usually including the rural households, women and those who run small businesses. Yet with developing economies experiencing growth, there is an urgent need to bring salaried workers, who are unbanked, into the fold. With employment growing rapidly in the informal sector often the new salaried people’s needs for financial products related to savings, credit and insurance are overlooked. Microfinance can certainly make inroads into this segment by shifting focus with products that are tailored for the needs of this segment.

These low paid salaried workers are often unable to access financial services due to the following reasons:

  • They earn too little to qualify for bank loans
  • Their salaries are paid in cash, not through a bank account
  • Commercial banks or other financial institutions take a long time to process loans
  • Loan processing fees are high and under-the-table dealings are very common

Therefore, when these workers require loans, they have no option but to turn to sources other than banks. This is usually done through personal borrowing from relatives or local money lenders that too at a very high rate. Therefore, it is need of the hour to have products specifically designed for this segment and that is user-friendly having specific features such as no processing fees, shorter loan processing time and fewer required documents making it easier for the people to avail these products.

It is of utmost importance that microfinance institutions realize that the financial services offered by the industry are needed by all the families, whether they are rich or poor, salaried or self-employed. Only then will the industry be able to design effective products for all the segments of the target population that can actually help the growth of the industry portfolio.

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