microfinancing

Microfinancing is the provision of financial services to individuals or groups who lack access to typical banking, with a focus on the poor and underserved. Core offerings include small loans (microcredit), savings accounts, microinsurance, and money transfer or payment services. These services are often delivered through specialized microfinance institutions, credit unions, nonprofit organizations, or mainstream banks with inclusive finance programs. The aim is to enable participation in productive activities, manage risk, and improve livelihoods.

Modern microfinance emerged from initiatives in the global South, notably the Grameen Bank in Bangladesh, which began in the 1970s with collateral-free, group-backed loans largely to women. The model spread worldwide, supported by a mix of NGOs, for-profit MFIs, and donor programs. In 2006, Muhammad Yunus and Grameen received the Nobel Peace Prize for achievements in poverty alleviation. The sector has since evolved with technology, digital payments, and data-driven lending to reach more clients.

Services and operating models commonly include microcredit, savings, and microinsurance, along with money transfers. Many MFIs use group lending or joint liability to reduce risk and may require limited collateral. Interest rates and fees vary and can be higher than those of traditional banks due to operating costs and risk, though some programs offer concessional terms. Mobile money and agency networks have expanded reach in recent years.

Impact and criticisms: microfinancing can empower entrepreneurship and strengthen household resilience, but it has faced concerns about high costs, over-indebtedness, and variable outcomes. Regulators and lenders increasingly emphasize consumer protection, transparency, and responsible lending to address these issues.