Role of Micro Finance

According to micro finance information group Kiva, micro finance is a way of supplying financial services such as loans, savings accounts and insurance to people who are too poor to usually have access to these kinds of services. Microfinance institutions (MFIs) that supply micro finance products to communities are made up of a variety of organizations from nonprofit groups to large commercial banks.

History

The history of micro finance can be traced back to a period from the 1950s to the 1970s when governments tried to stimulate economic growth in agricultural areas by providing farm owners with small amounts of credit in an attempt to encourage higher incomes and productivity. Kiva explains that during the 1980s the focus of these small-scale schemes switched to micro enterprise with women the main recipients of small loans to encourage the establishment of small businesses. Many micro enterprise schemes resulted in the organizations involved transforming themselves into financial institutions in the 1990s and expanding their range of services to poor communities in order to reinvest the money paid to them by their members.

Aims

According to the Microfinance Gateway organized by the Consultative Group to Assist the Poor, MFIs attempt to provide financial services and assistance to members of society who would not usually have access to traditional financial institutions such as banks. By providing an organized financial service, MFIs attempt to provide a safer way for poor people to invest money than the traditional ways offered within a community. Many poor people are described by Kiva as saving money in assets such as domestic livestock, jewelry and building materials that can be quickly traded for cash in times of need.

Credit

In terms of micro finance, the most common service offered that has been studied the most is micro credit, according to Microfinance Gateway. The role of micro credit is to offer people near the poverty line an opportunity to create business opportunities for themselves that have been clearly identified and can be capitalized upon quickly. Where credit lines are opened, people who would usually be left to struggle to survive in times of hardship such as during an illness or a natural disaster have access to money to survive on until times improve.

Uses

Microfinance Gateway explains that the services offered by MFIs, including micro credit, are not always appropriate to all members of society. Businesses that often benefit from the use of micro finance include small retail stores, street vendors and service providers. The role of micro finance, as described by Microfinance Gateway, is the provision of financial services to benefit poor communities around the world in such a way that long-term income levels in those communities are increased.

Equality

Micro finance groups are described by Kiva as often being associated with aiming their products at women in poor communities. The idea behind this is to provide households with economic stability and provide economic independence to women. By providing a source of income to women, Kiva reports that a sense of empowerment is passed on to those who benefit.

References

• Kiva: About Microfinance
• Microfinance Gateway: What Is Microfinance?