What is Microfinance?

Microfinance is the provision of financial services to low-income entrepreneurs who do not have the collateral or credit history to qualify for traditional bank loans. These financial services include the provision of small loans (microcredit), savings, and insurance.

What can Microfinance achieve?

The majority of the world's poor are self-employed in low-income generating activities such as street vending, clothes washing, or artisanry. Though they have the motivation, skills, and experience to turn these informal jobs into formal businesses, they are blocked from receiving the bank loans they need to start up their businesses. Formal commercial banks require collateral (assets such as property or land) on all loans that the poor simply do not have.

Microfinance, on the other hand, relies on the dynamics of peer pressure and community relationships to ensure the repayment of loans. Microfinance enables low-income entrepreneurs to access the credit and financial services they need. With a small loan, for example, a poor woman who earns a small income by making bread every morning to sell to customers on the street can start her own bakery. Instead of living off of a daily basis, this woman now has the time and money to bake her bread in bulk, sell it in her store, and earn a steady flow of income.

It is in this way that Microfinance has become a powerful vehicle for social change and an important component of development schemes worldwide. To date, Microfinance has reached close to 80 million clients in countries as diverse as the United States, and Bangladesh. In Bangladesh alone — one of the world's poorest countries — 64 percent of the recipients of microloans have generated enough income to move above and beyond the poverty line.

In addition to having a significant social impact, microfinance has proved to be a viable alternative to formal banking. One of the most popular microfinance institutions in the world, the Grameen Bank of Bangladesh, popularized a 'group lending' model that has brought repayment rates as high as 98.28 percent on all loans. This group lending model has proven to be so successful that it has been replicated by microfinance institutions in more than 100 countries throughout the world.

Microfinance In The News

More Online Resources for Microfinance:

MFIConnect - An online social network for microfinance enthusiasts

Grameen-info - Information and news at Grameen Bank

Seattle Microfinance - An online hub for links to microfinance news, forums and networks

The Microfinance Information Exchange, Inc. (MIX) is the leading business information provider dedicated to strengthening the microfinance sector. The organization's core focus is to provide objective data and analysis on microfinance providers.

Green Microfinance Online University Forum - The GreenMicrofinance University Forum is dedicated to promoting students' exchange of ideas on international development topics focusing on microfinance, energy, environment, and health. It is also be an electronic bulletin board for job and volunteer project recruiting.