MFIs

Microfinance institutions (MFIs) are financial service providers that offer small-scale financial products and services to low-income individuals and households who lack access to formal banking. They often serve micro-entrepreneurs, small farmers, and women, operating in both urban and rural areas. The core objective is to expand financial inclusion and enable productive activity with an emphasis on affordable credit and savings opportunities.

MFIs typically provide microcredit, savings accounts, and other financial services such as insurance, payment services, and remittance facilities. Loan products are usually small, with short tenures and frequent repayments; some MFIs use group lending or joint liability models to reduce risk and enforce repayment. Delivery channels include branch networks, mobile banking, agent networks, and partnerships with non-governmental organizations or self-help groups. Interest rates and fees vary by country and operator and reflect operating costs, risk, and regulatory constraints.

MFIs obtain funding from multiple sources, including wholesale funds from banks, development finance institutions, and impact investors, as well as donations and grants. Some MFIs support social performance measurement to balance financial sustainability with outreach goals.

Regulation and supervision of MFIs differ by country but generally fall under central banks or financial regulators. Some jurisdictions have specific MFIs acts or licensing regimes, prudential requirements, consumer protection rules, and interest rate or lending-cap policies. Regulation often addresses client over-indebtedness, transparency in pricing, and reporting standards.

Impact and criticism: MFIs have contributed to financial inclusion and income diversification, especially for women, but challenges include over-indebtedness, high effective costs, and perceptions of mission drift. Ongoing reforms focus on client protection, sustainable funding, and improved governance.