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. Creditor

    An entity (person or institution) that extends credit by giving ...
  2. Credit

    1. A contractual agreement in which a borrower receives something ...
  3. Socially Responsible Investment ...

    An investment that is considered socially responsible because ...
  4. Loan

    The act of giving money, property or other material goods to ...
  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. 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. Personal Finance

    4 Tips To Cut Your Monthly Bank Fees

    We asked banking professions to share their biggest tips for tackling bank fees, and hopefully save more even before spring hits.
  8. Savings

    Why Do Credit Cards Expire?

    Credit cards expire for more reasons than you could imagine – including, so you don't forget you have the card.
  9. Savings

    Mortgage Faceoff: Bank of America Vs. Wells Fargo

    Which bank offers the better mortgage deal? Here's how they compare on two popular types of mortgage.
  10. Savings

    Say Goodbye To Overdraft Fees

    At $35 a pop, overdraft fees can mount up quickly. Here are 4 different strategies for avoiding them.

You May Also Like

Hot Definitions
  1. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  2. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  3. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  4. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  5. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
  6. Accrued Interest

    1. A term used to describe an accrual accounting method when interest that is either payable or receivable has been recognized, ...
Trading Center