Types of Micro finance

1. Informal Financial Service Providers : These include moneylenders, pawnbrokers, savings collectors, chit funds and input supply shops. Because they know each other well and live in the same community, they understand each other’s financial circumstances and can offer very flexible, convenient and fast services. These services can also be costly and the choice of financial products limited and very short-term. Informal services that involve savings are also risky; many people have lost their money in Chit funds.

2. Member-Owned Organizations: These include self-help groups, credit unions, and a variety of hybrid organizations like ‘Financial Service Associations’. They are generally small and local, which means they have access to good knowledge of each other’s financial circumstances and can offer convenience and flexibility.

Grameen Bank, Bangladesh is a member-owned organization started by Muhammad Yunus in 1970. They have proven very innovative, pioneering banking techniques like solidarity lending, village banking, and mobile banking that have overcome barriers to serving poor populations.

3. Formal Financial Institutions: In addition to commercial banks, these include State banks, Agricultural development banks, Savings banks, Rural banks, and Non bank financial institutions. They are regulated and supervised, offer a wider range of financial services, and control a branch network that can extend across the country and internationally.

However, they have proved reluctant to adopt social missions, and due to their high costs of operation, often can’t deliver services to poor or remote populations. Efforts are being made to link self-help groups to commercial banks, by integrating mobile banking and e-payment technologies into their extensive branch networks.