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Microfinance: Empowering the Underserved

3 Min Read
July 04, 2023
EduALL

Microfinance refers to the provision of essential financial services to individuals with limited financial resources. This initiative aims to address the challenge faced by many small businesses and self-employed individuals who may not have access to bank loans. Want to know more? Let’s dive deeper below!

Microfinance

Microfinance is a type of financial service that provides small loans, savings accounts, and other financial products to people who do not have access to bank loans. It is typically aimed at low-income individuals, entrepreneurs, and small business owners who are unable to obtain credit through traditional banks.

The majority of microfinance institutions provide small loans, typically ranging from $100 to $25,000, to help people start businesses. Some banks also offer additional services such as checking and savings accounts, as well as micro-insurance products, and provide financial and business education. The objective of microfinance is to enable their clients to become self-sufficient in the long run.

Benefits of Microfinance

According to the World Bank, over 500 million people have been helped by microfinance directly or indirectly. In 2018, around 139.9 million people received benefits services from microfinance institutions (MFIs), compared to 98 million in 2009. This shows that microfinance really does help a lot of low-income people improve their life and gain sustainability. Here are some benefits of microfinance:

Immediate Fund

Microfinance is a crucial aspect of financial inclusion and has become a powerful tool for poverty alleviation. It provides financial services and immediate funds to those who do not have access to traditional banking services, such as low-income individuals and small business owners. With microfinance, these individuals and businesses can obtain loans, savings accounts, and insurance products, which in turn can help them to achieve their goals and improve their financial status.

Credit Access

Microfinance institutions exist to provide access to financial services to people who do not have access to mainstream banking services. These people are usually those with low income, little to no collateral, and lack of access to formal financial institutions. Mainstream banks typically do not serve these individuals because the amount of credit they require is usually small, and they may not have enough assets to provide as collateral for a loan. This is where microfinance institutions come in as they provide small loans to the poor, which can be a crucial step towards breaking the cycle of poverty.

Increase Sustainability

The idea behind microfinance is that small loans can make a big difference. With access to credit, they can start businesses or invest in assets that can provide them with a regular income stream. Thiscan improve their standard of living like better healthcare, education, and basic necessities like food and water.

Microfinance has emerged as a powerful tool in the fight for small businesses and individuals, providing access to financial services to those who are traditionally excluded from mainstream banking. While there are still challenges and limitations to microfinance, its impact on the lives of millions of people around the world cannot be denied.

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