What are microfinance organizations?

Microfinance and microfinance organizations are key to starting entrepreneurs. Businesses entering the market get wider access to sources of money. Let's consider in detail what microfinance organizations are.

general characteristics

In economic science, microfinance is understood to mean specific monetary relations between organizations providing relevant services and small business entities within the framework of personal contact and territorial proximity. This work involves the accumulation of funds, providing them with a simplified scheme. The receipt of the necessary capital is carried out according to the principles of payability, repayment, short-term, trust. The funds should be spent directly on the development of the business entity.

Microfinance Institutions: Feedbacks

Many start-up entrepreneurs turn to such companies. In modern conditions, starting from scratch is extremely problematic. This makes it necessary to seek additional sources of funds. As the businessmen themselves point out, microfinance organizations form an effective and highly dynamic lending system. The received funds allow to further stimulate the production and distribution of services and products. It is also important that beginning entrepreneurs get an opportunity not only to acquire the necessary market experience of extracting income, but also to start accumulating capital.

Tasks

Microfinance institutions offer flexible credit schemes. Such models allow you to easily overcome obstacles and start a business from scratch, without having your own funds and credit history. In addition, such companies contribute to the following tasks:

1. Increase in the number of entrepreneurs in the country.
2. Increase in tax deductions.
3. Forming a credit history for subsequent financing through the banking services sector.

Benefits

Microfinance organizations provide services to businessmen in addition to the work of commercial banks. Thus, there is a significant strengthening of the state's monetary system. Often, the conditions that banks offer are beyond the control of economic entities. One of the main problems is the need to secure a loan. Microfinance organizations conduct small operations with a low level of risk and a certain benefit. Such services will be unprofitable for commercial banks.

Subjects

Microfinance services provide:

1. Specialized institutions that deal exclusively with lending. They, in turn, are funded from external sources.
2. Credit unions. They are companies with collective membership. They are formed to provide financial services to their participants. Sources of funds are directly contributions of members. Usually such structures do not have external receipts.
3. Credit agricultural cooperatives. It is also an association of collective membership. They work mainly with farms and enterprises engaged in agricultural production.
4. Funds for supporting small business. They can be municipal or state. Such associations provide services without having a bank license.

Historical reference

The microfinance industry has become a consequence of the development of microcredit. Professor Muhammad Yunus in 1976 created the Grameen Bank. This institution specialized in granting loans to poor Bangladeshis. It is believed that this year and originated microfinance. After a while, other services for low-income people appeared. For example, began to develop microinsurance, microvessels and so on. According to statistics provided by the International Bank, by 2005 there were more than 7,000 such companies operating in the world. In total, their clients are about 16 million people in different countries.

Work in Russia

In the Russian Federation, microfinance companies are represented by various organizational and legal forms. As the basic microcredit enterprises cooperatives act. However, it should be noted that the development of the institution of microfinance in Russia is not as intensive as in other countries. There are very few specialized companies in the country that can carry out most of the small-scale credit operations. For the formation and subsequent development of the system, government support and a proper legal framework are necessary. One of the first steps towards the solution of these problems was the Law "On Microfinance Organizations". It was approved by the State Duma in 2010. FZ No. 151 regulates the work of such companies, determines the size, conditions and procedure for granting small loans to the population.