Microfinance is an application of financial technologies focusing on the small investor. Microfinance is mainly a group of financial services aiming at people and small companies who are still not well-connected to traditional banking and other such financial services. The micro finance market is huge, with millions being invested by both institutional and individual investors. The impact of microfinance has been far-reaching, with many people now opting for microfinance to help them with their personal financing needs.
Microfinance institutions are organizations specializing in the provision of small business loans and savings accounts. Microfinance institutions are also called bridging or private label finance institutions. There are many microfinance banks existing which provide financial services to customers. The concept of microfinance evolved from two sources: retail financing institutions, which provided credit unsecured to small entrepreneurs and organizations, and government-sponsored programs. Microfinance institutions offer various small business loan products such as merchant cash advance, personal debt consolidation, commercial mortgage, and merchant cash advance to business borrowers. They also provide savings accounts in various formats such as low-interest, high-interest, or no-interest.
Microfinance helps solve the problems of low-income individuals, and help them acquire formal financial services such as checking and savings accounts. In addition, it provides an effective way for those who do not have a regular income or regular employment to fund their day-to-day expenses. Through the credit offered by microfinance institutions, low-income individuals can purchase small items such as electronic books, music players, computers, laptops, cell phones, and other items that require a nominal payment. The low-income individuals can use the money to purchase these items, thereby increasing their income. Microfinance helps improve the conditions of living of the low-income groups in society.
Inmicrofinance institutions provide entrepreneurs with a platform through which they can make business plans and obtain necessary financing. Microfinance institutions also allow entrepreneurs to increase their chances of achieving success because they are provided with direct access to small business entrepreneurs. The microfinance lenders provide the entrepreneurs with direct access to small business entrepreneurs through the microfinance portals. These portals also make it easier for small business entrepreneurs to apply for microfinance. Applicants can choose to apply for a microfinance loan from any one of the portal sites, which means that the applicants can easily compare the rates and terms offered by different lenders.
Microfinance has played an important role in reducing the poverty level in developing countries. Since microfinance-related operations usually take place at the local level, many low-income individuals have been able to improve their lives and get out of poverty. Microfinance has also provided a unique opportunity for governments to develop infrastructure and townships.
Microfinance has helped many borrowers improve their lifestyle and attain financial freedom. This has also provided social benefits to many individuals because they have been able to start and build small businesses that earn them supplemental income and thus help them improve their lot in life. Apart from this, microfinance has provided an excellent opportunity to governments to undertake social development activities at the grassroots. This has helped many disadvantaged areas to flourish and thereby improve the overall economic development in these areas.