The Role of Microfinance Bank
Microfinance is a term for an area of financial services tailored to the poor. In contrast to many commercial banks, microfinance institutions focus on transactions of small amounts of money that can benefit the poor that make up their customer base.
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Identification
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Microfinance banks are one of several types of institutions devoted to microfinance transactions. Other common microfinance institutions include cooperatives and NGOs (nongovernmental organizations). There are also other more informal sources of microfinance transactions, such as local shopkeepers, according to the Asian Development Bank.
Types of Services
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Microfinance banks are most known for providing small loans to the poor, but they provide other routine financial services as well. These services include taking deposits, making money transfers and providing individual and commercial insurance policies.
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Significance
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Microfinance banks and other microfinance institutions provide poor and low-income households access to financial services that can be difficult to find at customary banks. Offering credit and other services to people who otherwise could not obtain them offers them new opportunities to improve their financial footing. It also proves to be a viable business model for some other microfinance institutions.
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