What is microfinance?
Experts around the world are convinced that sustainable economic development efforts must contain one essential element: job creation. Microfinance is a strategy to help low-income persons become self-employed, by providing them with the financial tools they need to start their own businesses – essential services like small loans, savings accounts and insurance.
Microloans, typically ranging between $25 and $500, provide people with the supplies and equipment needed to start or expand a business.
Savings accounts are deposit services that allow people to securely store small amounts of money to prepare for unexpected expenses or future investments.
Microinsurance includes a range of products that help the working poor manage economic hardship such as flooding, drought, hospitalization or death in the family.
Throughout the developing world, there are millions of people with the dreams, abilities and work ethic to start small businesses and find their way out of poverty. They simply need a favourable business culture – access to capital through small loans, a secure place to put their earnings such as savings accounts and insurance to mitigate against unexpected calamity – to get their enterprises up and running. While not everyone in the developing world is an entrepreneur, studies estimate that roughly 600 million individuals could benefit from the business-building services that microfinance provides. Currently only 10 – 20% of the developing world has access to microfinance.
In the beginning, microfinance was an idea no one thought would work. It is a sub-sub-prime lending model, providing credit to people with absolutely no collateral. Nearly forty years later, after more than 100 million have been lifted from poverty through microfinance-supported businesses, the poor have shown themselves to be credit worthy.
Microfinance is one of the best ways, if not the best way, to stimulate job creation from the bottom-up.