Microfinance organizations: list. The microfinance organization is

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Today we will talk about what microfinance organizations (MFIs) are, what money they exist for, who controls their work, and what benefits a borrower can get from them. But first of all, it is necessary to define the term itself.

What is microfinance

Immediately after its inception, the term "microfinance" referred to lending services provided to small and medium-sized businesses. This method was more affordable than the procedure that had to be completed in order to get a business loan from a regular bank.

However, over time, this term has lost its original meaning. MFIs still continue to issue business loans, but now private individuals have also become their clients. They are given the opportunity to get a microloan - this is an instant loan that does not require a thorough analysis of the financial condition and creditworthiness of the borrower.

MFI – what is it?

Thus, a microfinance organization is a non-banking organization,whose activities are aimed at issuing loans to legal entities and individuals. The scheme for issuing these loans is much simpler than in a bank. Like any other organization, an MFI needs capital to function properly. A microfinance organization can attract resources from various sources. First of all, these are high interest rates on loans provided, as well as cooperation with investors. They can be both individuals and banking organizations. In the latter case, the MFI is a subsidiary of such a bank.

Recognizing MFIs among other financial institutions is quite simple. They attract attention with their advertising slogans such as "Money before payday", "Loan in 15 minutes", "Quick money", etc. Their services are distributed in crowded places. Often such organizations have no more than 1-2 employees.

Types of MFIs

Each country defines its types of MFIs through the legal framework. It also determines the form of their registration. The main criterion that indicates that you have a microfinance organization in front of you is a simplified lending system. Thus, all legally operating non-banking structures that provide loans under such schemes can be divided into the following types:

• Financial group.
• Enterprise Support Fund.
• Credit union.
• Credit society.
• Credit agency.
• Credit cooperative.

As already mentioned, many MFIs aresubsidiaries of banks. Such activities are quite profitable for the latter. The fact is that the bank has the opportunity to issue loans, the interest rates on which are several times higher than those issued directly by them. Naturally, there is a high risk that such a loan will remain outstanding.

Who controls the work of MFIs

The main body that controls the work of MFIs is the Central Bank of the state in whose territory this organization exists. Licensing of these facilities is also carried out by the Central Bank. Microfinance organizations must also be included in the state register. In addition, they can obtain permits from those institutions that control the work of other financial institutions.

FZ “On Microfinance Organizations”

If we talk about Russia, then here this direction in business appeared not very long ago. Accordingly, the laws that regulate their activities were adopted only a few years ago. At the moment, there are two laws that regulate microfinance:

• FZ "On microfinance activities and microfinance organizations" (adopted on 2010-02-07).
• FZ “On Amendments to Certain Legislative Acts of the Russian Federation in Connection with the Adoption of the Federal Law “On Microfinance Activities and Microfinance Organizations” (adopted on 2010-05-07).

In accordance with these laws, there are some restrictions on the forms and laws of the deposit. In terms of loan amount,it should not exceed 1 million rubles. However, it is prohibited to issue a loan in foreign currency, regardless of the amount. In the case of investment, the bank can accept a deposit of at least 1.5 million rubles (from one depositor).

In addition, all microfinance organizations in Russia must ensure that information about the financial transactions of borrowers will be saved. This means that when issuing a loan, the MFO does not have the right to require the provision of contact numbers of "friends" who can be informed of the delay in payment under the loan agreement if it is not possible to contact the borrower himself.

Credits

There is an opinion that the MFI is ready to issue a loan to almost everyone who applies for it. But this is a misconception. Before working with a client, any organization must find out the creditworthiness of the client. For this, credit scoring is used. It is this system that allows a potential borrower to receive a decision on issuing a loan or refusing it within 10-15 minutes. In addition, this service is available even online.

Credit scoring is a system for analyzing the borrower's solvency, which is based on a certain algorithm and is carried out by processing personal data. The result of processing these data is expressed in points. Almost all microfinance organizations use this client solvency scheme. Loans, therefore, are issued not by an MFI employee, but by a computer program, since only from the results of its workdecision depends.

If, according to the results of credit scoring, a potential borrower is solvent, then he can receive a loan almost on the same day. However, the amount for which the loan is issued is often less than the one that was originally announced. The fact is that with the help of credit scoring, you can more realistically assess the solvency of a client than based only on his personal opinion, which is often overstated.

Loan interest is calculated for every day, not for a month or a year, as is the case in banks. Therefore, in most MFIs, loans are issued only for two weeks or a month. Otherwise, the overpayment on the loan may amount to an amount that is two or three times more than what the borrower received.

Investments

We need to talk more about where the MFI gets its capital from. A microfinance organization can cooperate with investors. Since the state does not give its guarantees for deposits in MFIs, it is quite dangerous to invest your money in them. There is a rather big risk that the investor not only does not receive interest, but also loses his contribution. Investments in microfinance organizations have a number of differences from bank deposits:

1. The income that can be obtained from such investments exceeds the banking one by 1.5–2 times.
2. The risks of investments are also significantly higher, respectively.
3. In the case of investing in MFIs, early withdrawal of the deposit is impossible in most cases (the exception is such a possibilityadditionally specified in the contract). In banks, this right is guaranteed to the depositor by law.
4. An investor who has received income from an MFI must pay income tax to the state. Bank deposits are subject to tax only in some cases.

As you can see, the profitability of such an investment is quite high, but the risk is also maximum. In addition, it increases significantly during financial crises, when the income level of most borrowers drops sharply. If such an organization is declared bankrupt, the investor will not even be able to return his contribution, not to mention interest, because often a microfinance organization is an institution that does not have its own property that could be sold on account of debts.

Ranking of Russia's leading MFIs

Despite all the risks and high interest rates on loans, every year more and more people turn to microfinance organizations. The list of such companies is growing along with the demand for such services. The most popular are:

1. Platisa.
2. MoneyMan.
3. Quick Money.
4. "Loan".
5. "MigCredit".
6. Zimer.
7. VIVA Money.
8. Money Fanny.
9. Rusmicrofinance.
10. MFI Summit.

Microfinance institutions listed above occupy the top ten positions in the ranking, which was compiled in accordance with user requests and frequency of mention in the media.

Instead of a conclusion

Given all the pros and cons of such an organization, we can conclude that loans in such companies are disadvantageous in the first place to the borrower. A microfinance organization is an institution that was established primarily for the purpose of making money. Therefore, MFIs may be interesting in terms of investment.

However, the financial illiteracy of the majority of the population and the habit of living on credit contribute to an increase in the number of such organizations in the country. The main thing that attracts people is the ease of obtaining a loan, the absence of the need to provide a package of documents, the speed of obtaining money in cash, and the ability to take a loan even for those who have had a bad credit history.