Facts about Microfinance

March 11, 2013 5:30 PM

Since garnering recognition after the 2006 Nobel Peace Prize it afforded creator Muhammad Yunus, a Bangladeshi economist, and his Grameen Bank, the advent of microfinance is said to be in demand from more than 600 million people. Offering financial services to low-income earners, mostly without collateral, this practice is considered a vital step towards economic freedom for the world's poor. Here are some facts on microfinance.

• Services offered include small business loans, mortgages, tuition, insurance, or other more traditional banking services like income earning savings accounts. These are accessible to the poor or those without credit or who live in remote areas without access to other institutions.

• Most microfinance institutions (MFI's) are private companies, small in clients and staff. Operations can therefore be expensive. Also, loans offered without collateral and the administration costs caused by small, weekly repayment cycles mean the average interest rate is 35%.

• By offering localized answers to the poor in familiar surroundings, MFI's give people a means to help themselves. The loans are used to increase income and relieve short-term monetary problems. They also give much needed investment to young businesses which in turn provides pecuniary freedom for the business operator and creates future jobs. This decided push towards empowerment of the poor is the basis for their impact on society.

• The future of MFI's lies in the desire of the people to elevate their economic freedom. With companies like CSR (Catholic Relief Services) and Kiva reporting services rendered to over a million people in 35 countries and programs like the peer-to-peer model that offers greater security to investors, respectively, it is expected microfinance is here to stay.

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Facts about Microfinance

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