Micro Finance Banks target the poor and rural customers and make their loan and deposit products as per the needs of their customers.
MFB usually provides loans without any collateral and security on personal guarantee and their size of the loan is also small as the name suggests micro.
Whereas commercial banks have huge loans amount to offer to their customers and their loan is usually for the wealthy customers and these loans are also offered against some security or collateral.
Micro Finance Banks usually provide loans to groups and hence their recovery rate is high as compared to commercial banks which provide loans to individuals.
Getting loans from Microfinance banks is rather easy than that of commercial banks.
MFB are only providing loans that are interest-based and there is none of any banks in Pakistan which is Sharia-compliant.
As their loans are mostly without any security hence they charge heavy mar up rates.
Their recovery rate is almost 100% because they usually provide loans in groups and the group members cant get the loans back if any of them get the default.
So all the members not only adjust their own loans but also coordinate the weak ones to give back the loan to the bank so that they may get a loan once again.
Most customers of micro banks get their loans again and again and the concept that microfinance banks bring prosperity at the grass-root level and help to eradicate poverty from the poor society is falsified.
Such heavy interest-based loans cause more poverty to the poor rural people and they also lose their respect in case they are unable to pay back the loan to micro banks because the group members start disgracing them and compel them to pay back the loan at any cost.
It’s highly recommended to avoid taking loans from any banks particularly from microfinance banks as they charge a heavy marks up.