Microfinance (MFI)
Microfinance refers to financial services provided to low-income individuals or businesses. This is important because said individuals/businesses typically wouldn’t be able to acquire these financial services from traditional banks. Most microfinance institutions (MFIs) focus on offering credit in the form of small working capital loans (microloans or microcredits), often in developing countries, to empower individuals and small businesses.
Small-scale finance, microcredit
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MFI
Examples
A person wants to start a business and needs $300 to get things started. However, as they don’t have any collateral nor a credit history, a traditional bank doesn’t approve their loan request. They therefore turn to a microfinance institution that approves the loan with a low interest rate. With their newfound funds, they can now open a business and pay off the loan over time.
FAQ
Who can benefit from microfinance services?
Microfinance services are designed for individuals and small businesses that don’t have access to traditional banking services. This might be caused by a low income or a lack of collateral
How does microfinance differ from traditional banking?
Microfinance focuses on underserved communities and populations, offering small loans and not requiring collateral or a credit history. Traditional banking on the other hand typically serves established customers and gives out higher loan amounts.
What are the benefits of microfinance?
In ideal circumstances, microfinance gives smaller businesses access to capital and financial independence, empowering both the business and the community it resides in.
