microfinance

Microfinance refers to the provision of financial services to low-income individuals or groups who lack access to conventional banking. Core offerings include small loans (microcredit), savings accounts, microinsurance, and payment or remittance services. These services are designed to support income-generating activities, risk management, and financial resilience, with a focus on women and marginalized communities. Microfinance is typically delivered by microfinance institutions, credit unions, cooperative banks, and some commercial banks, often using client-centered, asset-light models that emphasize rapid deployment and outreach.

The modern microfinance movement began in South Asia in the 1970s and 1980s, with pioneers such as Grameen Bank and Muhammad Yunus advocating collateral-free loans and group lending as a way to enable credit for the poor. Over time, models have diversified to include individual lending, village banking, and digital delivery through mobile platforms. While profit and sustainability are goals for many MFIs, some are donor- or government-financed and mission-oriented; analyses stress the importance of responsible lending, transparent pricing, and financial literacy.

Evidence on impact is mixed. Some studies link microfinance to increased income, better consumption smoothing, and enhanced women’s empowerment, while others highlight risks such as over-indebtedness, high effective interest rates, and limited long-run poverty reduction in some settings. The field has evolved toward responsible lending, client protection, and financial inclusion through a broader set of services, including savings, insurance, and payments, often integrated with digital financial infrastructure.