What is the JLG model for micro finance in India?
5 min read | about 1 month ago
Are you looking forward to raising funding for your small business in India? Microfinance business loans could be your answer. Since 2012, microfinance has grown over 10 times in India, with the portfolio valued at Rs. 5 Lakh crores in 2023. Microfinance in India, especially the JLG model, has been an important addition to the country's financial industry for many years, providing loans and financial services to millions who do not receive them from banks traditionally. In this blog, we will examine a popular and effective way for small business owners to get financing—the JLG (Joint Liability Group) model of microfinance in India. So, let's begin.
Microfinance in India
Microfinance is the provision of financial services to people with lower incomes and small enterprises which cannot gain access to funds easily. It includes micro-credit, micro-savings, micro-insurance, and a host of other financial products and services. Microfinance has played a vital role in poverty alleviation and financial inclusion in India. It also has turned many into entrepreneurs who not only make a living but also offer employment by growing their businesses. In India, microfinance institutions have also made a significant impact on the gender gap in access to finance by helping women secure funding to fulfill their entrepreneurial dreams. Among the many types of microfinance available in India, the JLG model is growing to be popular. So, what exactly is it? Let's take a look. The JLG model of microfinance business loans is actually a group-based lending model—a group of people take out loans together and assume the responsibility for repaying them. This model has many advantages compared with a single borrower one. To begin with, the repayment rate is higher, and the costs of the transaction are lower. There are a number of other points about this form of micro-lending worth knowing. So, we will look at the JLG model in greater detail in the next section.
What is the JLG Model?
So, what exactly is the JLG model for microfinance in India? Under this model, a group of 4-10 individuals comes together to form a Joint Liability Group (JLG). The group is jointly liable for the repayment of the loan, which means that if one member of the group defaults, the entire group is responsible for the repayment of the loan. The JLG model is designed to provide access to credit to the unbanked and underserved population in India. The model is based on the concept of social collateral, which means that the group members act as collateral for each other. This reduces the risk for lenders and makes it easier for them to provide loans to small business owners who do not have traditional collateral.
Who is it for?
The JLG model is designed for small business owners and entrepreneurs who do not have access to traditional banking services. It is particularly helpful for those who do not have collateral or credit history and are unable to get loans from traditional banks. The JLG model also helps to reduce the risk for lenders by spreading it across the group. This makes it easier for lenders to provide loans to small business owners who would otherwise be considered high-risk borrowers. But, the question is whether this model can cater to different needs. There are quite a few types of loans under the JLG model that you can choose from according to your requirements. So, what are these loans? We'll discuss them in the next section, so keep reading.
Types of Loans You Can Take Under the JLG Model
Under the JLG model of microfinance, you can opt for 4 types of loans.
1.Under the JLG model, you can take a group loan microfinance of up to Rs. 80,000 for a tenure of 24 months.
2.You can also take a microfinance business loan of up to Rs. 3,00,000 for a tenure of 36 months.
3.In collaboration with water.org, banks like Unity Small Finance Bank provide microloans of up to Rs 30,000 to build sustainable facilities for safe water and sanitation.
4.Under the PM Svanidhi scheme, an initiative by MOHUA under GOI, some banks provide loans up to Rs 10,000 to help small businesses get off the ground again
Conclusion
In conclusion, the JLG model for microfinance in India is an effective and popular way for small business owners to access finance. It provides access to credit to those who are not served by traditional banks and reduces the risk for lenders by spreading it across a group. If you are interested in applying for a JLG microfinance business loan, make sure you have all the required documents and visit your nearest microfinance institution to get started.
FAQs
1.What is the JLG model for microfinance in India?
The Joint Liability Group (JLG) model is a microfinance scheme that enables small borrowers to access credit without collateral. It involves group lending and peer pressure to ensure repayment.
2. How does the JLG model work?
Under the JLG model, a group of 4-10 individuals jointly apply for a loan and are jointly liable for repayment. The group is responsible for ensuring timely repayment, and the loan is disbursed based on the group's creditworthiness.
3. What are the advantages of the JLG model?
The JLG model has several advantages, including increased access to credit for small borrowers, reduced risk for lenders due to group liability, and enhanced social capital among group members. It has been successful in promoting financial inclusion in India
About Unity Small Finance Bank
Unity Small Finance Bank is committed to making banking simpler and more accessible for everyone. Our services include Savings Account, NRI account, Current Account, Fixed Deposits, and Personal Loans offering flexible tenures and attractive interest rates. We also offer financing options like MSME Loans and Microfinance to support businesses and underserved communities. Learn more about Unity Small Finance Bank here.
