The rural poor constitute both the greatest unmet need and largest unserved market for financial services. By providing financial services to the rural poor, problems associated with high levels of poverty, low levels of production, and rural-urban migration can be addressed.
Loans are borrowed funds with specified terms for repayment. When there are insufficient accumulated savings to finance an activity and when the return on borrowed capital exceeds the interest rate charged on the loan, it makes sense to borrow rather than postpone the investment until sufficient savings can be accumulated.
Loans are also an important means of solving imbalances between household income and expenditure, provided income flows in the future are sufficient to meet the repayments. Credit is used widely as a poverty alleviation tool as it can enable people to start or improve enterprises but usually it is not a sufficient solution on its own.
There is a wide variety of loan products for a financial institution to consider.
In developing countries, bank lending programs can lead to economic growth and sustainable employment opportunities. Rural loans are designed to accommodate the unique loan processing needs of small community/rural-based lenders by simplifying and streamlining loan application process and procedures and promote the economic development of local communities.