Microfinance: a plain guide for families

Under RBI rules, it is a loan without collateral (nothing like gold or land is pledged). It goes to a household with yearly income up to ₹3,00,000. A bank, small finance bank or NBFC can give it. You usually repay weekly or monthly, and the loan often comes through a group. Read our full guide, What is microfinance.

RBI caps all the household's loan payments together at 50% of monthly household income, including loans that are not microfinance. That is an upper limit, not a safe amount. A household earning ₹20,000 a month could pay up to ₹10,000. That leaves only ₹10,000 for food, rent, school and medicines. Most families are safer paying a much smaller share.

It depends on your contract. In a JLG (joint liability group), members may have to pay for each other if someone misses a payment. Before you sign, ask the loan officer directly: "Am I responsible if someone else doesn't pay?" Then check the answer in the written terms. Our guide on group loans explains JLGs and SHGs.

You can repay early with no penalty. You must get a KFS (Key Facts Statement), a short sheet with the rate, fees and total you repay. The lender can't ask for property or valuables as security. RBI also treats calls to overdue borrowers before 9 am or after 6 pm as harsh behaviour. If something goes wrong, ask for the grievance officer's contact and complain in writing.

Add up every payment. A loan of ₹40,000 repaid at ₹1,000 a week for 52 weeks costs ₹52,000 in total. That is ₹12,000 extra, before any fees or insurance. Some months have five weeks, so you pay ₹4,000–5,000 in those months. Compare the total with the cash you get in hand, and check the APR in the KFS. Try Compare two microfinance offers.

We don't rank lenders. Our directory lists NBFC-MFIs from RBI's list, sorted A–Z, and it is not a ranking or a recommendation. Lenders can't pay to appear or to move up. Check any lender's legal name yourself on RBI's list of registered NBFCs. Banks and small finance banks also give microfinance loans, but they aren't in our list yet.