microfinance
Financial services provided to low-income individuals or small businesses who lack access to conventional banking, including small loans, savings, and insurance.
Example
“The microfinance institution provided $500 loans to women entrepreneurs in rural Kenya who had no collateral or credit history.”
Memory Tip
MICROFINANCE = tiny loans for people without bank access. Small amounts, massive impact.
Why It Matters
Microfinance matters because it provides financial access to billions of people worldwide who are excluded from traditional banking systems, enabling them to start small businesses, invest in education, and build savings. Understanding microfinance is important for investors seeking social impact opportunities and for individuals in developing regions looking to access affordable credit.
Common Misconception
Many people mistakenly believe that microfinance is purely charitable aid or that it only involves giving money away to the poor. In reality, microfinance is a commercial lending business where borrowers repay loans with interest, making it self-sustaining and allowing institutions to serve more people over time.
In Practice
A woman in rural India borrows $150 from a microfinance institution at 18 percent annual interest to purchase sewing equipment for her tailoring business. She repays the loan in monthly installments of $15 over 12 months, and after successfully completing this loan, she qualifies for a larger $500 loan to expand her business and hire employees.
Etymology
MICRO (very small) FINANCE (financial services). FINANCIAL services at a very SMALL scale.
Common Misspellings
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See Also
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