What is microfinance?
Basic financial services, like credit, savings and insurance, give people an opportunity to borrow, save, invest and protect their families against risk.
But with little income or collateral, poor people are seldom able to borrow money from banks and other formal financial institutions. Even when they do have income or collateral, the amounts they require are often too small to appeal to banks. Instead, poor people tend to rely on informal financial relationships, like village moneylenders, that usually come at a very high cost to borrowers.
Microfinance institutions, such as financial cooperatives, financial non-governmental organizations and rural banks among others, can provide poor people with small amounts of credit at reasonable interest rates. A loan as
little as US$ 50 can give poor people a chance to set up their own small business, and possibly create more jobs. It can also help secure a family's food supply, buy medicine and pay for children's education.
Although credit is an important part of microfinance, it is just one of the diverse financial services that poor people need to improve their lives. Poor people also need saving services, basic insurance options and affordable remittance systems to best manage their assets and generate income.
Still, only a fraction of the world’s poorest people have access to such services. While the microfinance sector continues to grow, at least 400 million poor and low-income people are not being served by microfinance programmes.Source: www.ifad.org
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