What do you mean by Micro Finance Institution? State the Characteristics of a Micro Finance Institution.

Meaning of Micro Finance Institutions (MFI) A micro finance institution is an organization that offers financial services to low-income populations. Almost all give loans to their members, and many offer insurance, deposit and other services. Organizations which finance on a larger scale are regarded as microfinance institutes. They are those that offer credits and other financial services to the representatives of poor strata of population (except for extremely poor strata). An increasing number of microfinance institutions (MFIs) are seeking non-banking finance company (NBFC) status from RBI to get wide access to funding, including bank finance. NABARD has defined microfinance as "provision of thrift, credit and other financial services and products of very small amounts to the poor in rural, semi-urban and urban areas provided to customers to meet their financial needs with only qualification that (1) transactions value is small and (2) customers are poor." Characteristics of a Micro Finance Institution: Micro finance provides financial services to those whose income is small and unstable. These people are in need of credit facilities for several reasons. To name a few: their needs are small and arise suddenly. the institutional providers of finance, namely, the banks, demand collateral security which they cannot provide. most of the time, they are in urgent need of funds to meet their consumption demands, for example, to meet expenses related to education, illness, funerals, weddings for which it is difficult to obtain institution finance. for purpose of investment in income generating activities. Concept of Self-Help Group (SHGs) is the most exciting discovery in the context of microfinance. The Indian microfinance scene is dominated by SHGs and their linkage with banks. This has helped in empowerment of women and eradication of poverty among people with low income. Microfinance provides a greater menu of options whereby the small loan can be garnered not just from the external sources but also through self-mobilization, by way of saving and sale of assets. The biggest flexibility in the case of microfinance is the lack of any physical collateral, even in case of loan from the bank. The characteristics of MFIs may be summarized as under: The size of the loan given by the MFI is small. The repayment period is short. MFI can mobilize resources both from internal and external sources. No collateral for loan is required. the purpose of end use of loan is flexible. loans given are mostly group loans, trickling down to individuals. Transaction cost is low, due to group lending.