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Microfinance is the supply of loans, savings, and other basic financial services to the poor. People living in poverty, like everyone else, need a diverse range of financial instruments to run their businesses, build assets, stabilize consumption, and shield themselves against risks. Financial services needed by the
poor include working capital loans, consumer credit, savings, pensions, insurance, and money transfer services.
The poor rarely access services through the formal financial sector. They address their need for financial services through a variety of financial relationships, mostly informal. Credit is available from informal commercial and non-commerical money-lenders but usually at a very high cost to borrowers. Savings services are available through a variety of informal relationships like savings clubs, rotating savings and credit associations, and other mutual savings societies that have a tendency to be erratic and insecure.
Providers of financial services to the poor include donor-supported, non-profit non-government organizations (NGOs), cooperatives; community-based development institutions like self-help groups and credit unions; commercial and state banks; insurance and credit card companies; wire services; post offices; and other points of sale. NGOs and other non-bank financial institutions have led the way in developing workable credit methodologies for the poor and reaching out to large numbers of the poor. Throughout the 1980s and 1990s, these programs improved upon the original methodologies and bucked conventional wisdom about financing the poor. They
have shown that the poor repay their loans and are willing and able to pay interest rates that cover the costs of providing the loans.
Financial services for the poor have proved to be a powerful instrument for poverty reduction that enables the poor to build assets, increase incomes, and reduce their vulnerability to economic stress.? However, with nearly one billion people still lacking access to basic financial services, especially the very poor, the challenge of providing financial services to them remains.
Convenient, safe, and secure deposit services are a particularly crucial need.
Marguerite S. Robinson, The Microfinance Revolution: Sustainable Finance for the Poor (Washington, D.C.: The World Bank, 2001).
Robert Peck Christen and Deborah Drake, Commercialization: The New Reality of Microfinance? (West Hartford, Conn.:? Kumarian Press, Inc., 2002).
Alfred Hannig and N. Omar, "The Emerging Consensus in the Regulation and Supervision of Microfinance: Synthesis of the Debate," in How to Regulate and Supervise Microfinance? Key Issues in an International Perspective, ed. Alfred Hannig and Edward Katimbo-Mugwanva, Financial Systems Development Series No. 1 (Kampala, Uganda: Bank of Uganda-German Technical Cooperation, Financial Systems Development Project, 2000).
L. Mayoux, "Questioning Virtuous Spirals: Micro-finance and Women's Empowerment in Africa," Journal of International Development 11, no. 7 (1999): 957-84.
Imran Matin, David Hulme, and Stuart Rutherford, Financial Services for the Poor and Poorest: Deepening Understanding to Improve Provision (Manchester, U.K.: Institute of Development Policy Management, 1999)
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