Microfinance is not panacea from all troubles, this also means that not any poor person can obtain the loan. In particular, representatives of very poor population, lacking stable income, living by means of chance earnings, and particularly having debts (in relation to community facilities, relatives, friends, etc cannot be clients of microfinance, since in case of microcredit non-repayment they will have more debts, becoming poorer. For such people special programs of social assistance are needed, which are able to support main needs of people living in the poorest dwellings, lacking garments and food.
There is some restrictions regarding what the money is used for. Usually micro credits can´t be used for the purposes like:
- Payments of other loans or other debts;
- Production of tobacco and liquor;
- Forming turnover capital of trade and intermediary business;
- Organization or purchasing products for gambling or entertainment services for the population;
- Establishing trading points;
- Purchase of property that´s not used for business.
In the microfinance sector there´s other services expanding as well. The poor need, like all of us, a secure place to save their money and access to insurance for their homes, businesses and health. Microfinance institutions are now innovating new products to help meet these needs, empowering the world’s poor to improve their own lives. Products common used in the microfinance sector today is:
1. Micro Savings
A possibility to save money without no minimum balance. Allows people to retain money for future use or for unexepected costs. In SHGs the members save small amounts of money, as little as a few rupees a month in a group fund. Members may borrow from the group fund for a variety of purposes ranging from household emergencies to school fees. As SHGs prove capable of managing their funds well, they may borrow from a local bank to invest in small business or farm activities. Banks typically lend up to four rupees for every rupee in the group fund;
2. Micro Insurance
Gives the entrepreneurs the chance to focus more on their core business which drastically reduces the risk affecting their property, health or working possibilities. The is different types of insurance services like life insurance, property insurance, healt insurance and disability insurance. The spectrum of services in this sphere is constantly expanded, as schemes and terms of providing insurance services are determined by each company individually;
3. Micro Leasing
For entrepreneurs or small businesses who can´t afford buy at full cost they can instead lease equipment, agricultural machinery or vehicles. Often no limitations of minimum cost of the leased object.
4. Microcredit
Microcredit is an extremely small loan given to those who lack a steady source of income, collateral, or any credit history. It aims to support and kickstart entrepreneurs who are unable to obtain the financial backing needed to start a small business or capitalize on an idea.
5. Money Transfer
A service for transferring money, mainly overseas to family or friends. Money transfers without opening current accounts are performed by a number of commercial banks through international money transfer systems such as Western Union , Money Gram, and Anelik. On the surface they may seem like small money transfers, but when one considers that such transactions take place millions of times around the world each week, the numbers start to become impressive.
According to the World Bank, the annual global market for remittances – money transferred home from migrant workers – is around 167 billion US dollars. The estimated total is closer to 230 billion dollars if one counts unregulated transactions. Remittances are also an important source of income for many developing countries including India, China and Mexico, all of which receive over 20 billion dollars each year in remittances from abroad.