Microfinance Definition

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The word microfinance is being used very often in development vocabulary today. It is comprised of two words: micro and finance which precisely means small credit. The concept of microfinance goes beyond the provision of small credit to the poor individuals, households, and entrepreneur or organizations. Christen (1997) describes microfinance as the source of providing a variety of financial services to the poor based on market driven and commercial approaches like savings, money transfers, payments, remittances and insurance among others. However many microfinance practices today still concentration on micro credit: provision of small credit to the poor with the hope improving their labor productivity and thereby lead to increment in household…show more content…
The lack of capital makes it difficult for people to undertake productive employment generating activities. Microfinance aims to generate self-employment opportunities for the poor. It could be used to provide for immediate household expenditures on food, education, housing and health. Microfinance is an effective way for poor households to increase their economic security and thus reduce poverty. It enables poor people to manage their limited financial resources and reduce the impact of economic shocks and increase their assets and income (Robinson, 2001). MFIs are those institutions that provide financial services to low income people and include NGOs: member based organizations such as village banks, savings and credit cooperatives, specialized government banks and private commercial banks. MFIs vary by organizational type, scale of operations and level of professionalism. A study of microfinance shows that there is no single best practice model for the provision of microfinance services (Seibel,…show more content…
By early 1950 – 1970 many new practices were on stream to spread small loans to groups of poor women to them enable to invest in micro business. These experiments were first started by the Grameen Bank of Bangladesh, ACCION International in Latin America and the Self-Employed women’s Association Bank in India (Little Field, Morduch and Hashemi, 2004). The term microcredit was replaced by microfinance in the early 1990. By that time the term had started to include savings, and other services such as insurance and money transfers (Basu et al,

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