Microfinance

AAA

DEFINITION of 'Microfinance'

A type of banking service that is provided to unemployed or low-income individuals or groups who would otherwise have no other means of gaining financial services. Ultimately, the goal of microfinance is to give low income people an opportunity to become self-sufficient by providing a means of saving money, borrowing money and insurance.

INVESTOPEDIA EXPLAINS 'Microfinance'

Microfinancing is not a new concept. Small microcredit operations have existed since the mid 1700s. Although most modern microfinance institutions operate in developing countries, the rate of payment default for loans is surprisingly low - more than 90% of loans are repaid.

Like conventional banking operations, microfinance institutions must charge their lenders interests on loans. While these interest rates are generally lower than those offered by normal banks, some opponents of this concept condemn microfinance operations for making profits off of the poor.

The World Bank estimates that there are more than 500 million people who have directly or indirectly benefited from microfinance-related operations.

RELATED TERMS
  1. Credit

    1. A contractual agreement in which a borrower receives something ...
  2. Creditor

    An entity (person or institution) that extends credit by giving ...
  3. Loan

    The act of giving money, property or other material goods to ...
  4. Socially Responsible Investment ...

    An investment that is considered socially responsible because ...
  5. Microcredit

    An extremely small loan given to impoverished people to help ...
  6. Financing

    The act of providing funds for business activities, making purchases ...
Related Articles
  1. Entrepreneurship

    Microfinance: What It Is And How To Get Involved

    This growing industry is full of opportunities for the socially conscious investor.
  2. Microfinance groups lend to customers who have low incomes.
    Insurance

    An Introduction to Microfinance

    Is microfinance a way to help the poor, or will it just make them poorer?
  3. Options & Futures

    Nobel Winners Are Economic Prizes

    Before you try to profit from their theories, you should learn about the creators themselves.
  4. Entrepreneurship

    Social Finance Careers: Creating A Better World

    A financial career can be used to do more than just bring in profits. Find out how to get a career with a more social objective.
  5. Credit & Loans

    The Importance Of Your Credit Rating

    A great starting point for learning what a credit score is, how it is calculated and why it is so important.
  6. Options & Futures

    Peer-To-Peer Lending Breaks Down Financial Borders

    Banks are no longer the only option for a loan - the P2P lending system operates without them.
  7. The annual percentage rate, or APR, is the cost per year of borrowing.
    Credit & Loans

    What's the Annual Percentage Rate (APR)?

    The annual percentage rate, or APR, is the cost per year of borrowing. By law, all financial institutions must show customers the APR of a loan or credit card, which clearly indicates the real ...
  8. Before you sign up for a car title loan, investigate these 8 alternate strategies.
    Credit & Loans

    8 Top Alternatives to Car Title Loans

    Before you sign up for a car title loan, investigate these 8 alternate strategies.
  9. Credit & Loans

    What are the different types of cash advances?

    Find out the different types of cash advances along with their different features to determine which option, if any, is best for you.
  10. Credit & Loans

    Is it better to get a balance transfer or a personal loan to pay off my credit card debt?

    Find out what you should consider before deciding to pay off your credit card debt by taking out a personal loan or using a balance transfer to another card.

You May Also Like

Hot Definitions
  1. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  2. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  3. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  4. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  5. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  6. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
Trading Center