Microfinance
Candlefocus EditorMicrofinance is a method of providing informal banking services to low-income individuals, groups, and businesses who traditionally lack access to traditional banking services. By providing small loans or access to savings or other money management services, microfinance services enable individuals and business to thrive, often in impoverished or underserved areas. Microfinance services are life changing for the people they benefit, making it possible for them to start their own business, finance a family need, or increase their seasonal income.
Microfinance services have been used to provide financial services to individuals, families, and small businesses in developing and underdeveloped countries since the 1970s. Today, an estimated 500 million people have benefited from microfinance-related operations, according to the World Bank. Microfinance services range from micro-loans, savings accounts, social funds, and insurance products, to cash transfers and credit-building services.
Like conventional lenders, microfinance institutions charge interest on loans and institute specific repayment plans. A loan officer, often part of a network of local individuals and groups, helps people to determine a loan or lending package that is affordable and suitable for their needs. This person also offers advice and other help on managing money and basic business management skills.
Microfinancing is often seen as an inexpensive way to increase economic growth and promote development. It can give people the means to start their own business and become self-reliant, which decreases poverty and financial dependency while enabling them to participate in their local, regional, and global economy. Microfinancing can also provide access to resources such as financial, social, and environmental training, and can be an effective tool to promote gender equality.
Microfinance has enabled many individuals and businesses in developing countries to start, thrive, and grow. It is an effective tool for tackling poverty and financial exclusion, and is currently used in more than 100 countries globally. By empowering individuals, microfinance can be an efficient and effective way to increase economic growth and development in underserved populations.