What is Microfinance?
Microfinance refers to the financial services provided to low-income individuals or groups who are typically excluded from traditional banking. Most microfinance institutions focus on offering credit in the form of small working capital loans, sometimes called microloans or microcredit. However, many also provide insurance and money transfers, and regulated microfinance banks provide savings accounts.
Microfinance aims to improve financial services access for marginalized groups, especially women and the rural poor, to promote self-sufficiency.
Microfinance and Financial Inclusion
Low-income people are neglected by their financial systems because they are considered uneconomical to serve or too difficult to reach. According to the World Bank’s Global Findex, 1.7 billion adults globally are financially excluded, living without formal credit or savings.
Microfinance seeks to address the needs of the unbanked by fostering economic justice and financial inclusion for all.
Benefits of Microfinance
Access to essential financial services can empower individuals economically and socially by creating self-reliance and economic sustainability in impoverished communities where salaried jobs are scarce. The benefits of microfinance include:
- Small loans enable entrepreneurs to start or expand micro, small and medium enterprises.
- Savings help families build assets to finance school fees, improve homes (e.g., install power or running water) and achieve goals.
- Insurance products can offset the cost of medical care.
- Money transfers and remittances allow families to easily send and receive money across borders.
Hundreds of millions of low-income people have benefited from microfinance since its inception, with about 140 million borrowers served by the industry worldwide annually.