Microfinance refers to a range of financial services including credit, savings, insurance, money transfers, and other financial products targeted at poor and low-income people.
Micro Credit more narrowly refers to loans and other services from providers that identify themselves as “microfinance institutions” (MFIs).
Micro Credit clients are often self-employed, household-based entrepreneurs. Their diverse “microenterprises” include
- Small retail shops,
- Street vending.
- Artisanal manufacture, and service provision
In rural areas, micro-entrepreneurs often have small income-generating activities such as food processing and trade; some are farmers. Most microfinance clients fall near the poverty line, both above and below. Women comprise the majority of clients. Households in the poorest 10% of the population, including the destitute, are not traditional microcredit clients because they lack stable cash flows to repay loans. Microcredit best serves those who have identified an economic opportunity and can capitalize on it if they have access to a small amount of ready cash.
Microcredit can provide a range of benefits including long-term increases in income and consumption. The clients faithfully repay their loans even when the only compelling reason is to ensure continued access to the service in the future.
The ultimate goal of microfinance is to enable the poor to build assets, increase incomes, reduce vulnerability to shocks and economic stress and improve quality of life by enabling better access to education and healthcare. The microfinance industry has grown at a rapid pace across the world and has created a positive impact in the lives of millions of poor people.