What is Microfinance?


Microfinance is a concept that has gained popularity in recent times. It refers to providing small loans to people who can’t get them from traditional banks, often because they don’t have enough collateral or established credit history.

However, microfinance has existed for centuries and was first used by the Catholic Church in Spain. Since then, various institutions have attempted to provide financial services to those who might otherwise go without.

In this blog post, we’ll discuss what microfinance is, how it works, and why it’s essential for social development around the world:

Microfinance is a new concept in the field of banking.

Microfinance is a new concept in the field of banking. This type of lending is a short-term and low-interest rate loan given to people who have difficulty getting loans from traditional banks.

Microfinance institutions (MFIs) provide money to those who cannot afford it or are not eligible for typical bank loans because they do not have collateral, steady income, or credit history.

Muhammad Yunus introduced the idea behind microfinance in Bangladesh, where he established Grameen Bank and pioneered this concept for poverty alleviation through small loans at affordable interest rates with no collateral requirement.

Short-term loan.

Microfinance is a short-term loan given to people at low-interest rates. Microfinance loans are offered to low-income people who don’t have collateral or credit history.

What is the history of microfinance?

You’re probably wondering what the history of microfinance is. The concept of microfinance was relatively new when it was first introduced, and it was intended to help people in developing countries gain access to financial services. Microloans help individuals with limited resources to start their businesses, boost their incomes and move out of poverty.

The term “microfinance” was first coined by Dr. Muhammad Yunus of Bangladesh in 1969 as part of his doctoral thesis on the subject;

he has received extensive recognition for his contributions in this area since then—he was awarded the Nobel Peace Prize in 2006!

Yunus introduced his idea at a conference on rural employment held by UNESCO (United Nations Educational Scientific and Cultural Organization) two years later;

he presented findings from research conducted among 70 families living near Chittagong City who could not borrow money because they were deemed unworthy candidates by banks due to factors such as age, gender, or lack of collateral assets like land titles or savings accounts.

This conference spurred interest among many participants who agreed that something needed to be done about poverty levels across Asia; some even offered support for Yunus’s plan during talks after the event concluded.

Where can I get microfinancing?

You can apply for microfinancing through an NGO. Some NGOs provide microfinancing to their staff members or volunteers as part of their benefits package; others offer it to people who work with them on specific projects (e.g., building houses).

In addition, many non-profit organizations make grants available to other nonprofit groups that provide housing or support services to the poor in developing countries worldwide.

How do I get approved for microfinancing?

The first step is to prepare a business plan. The most important part of this is the financial side, which should include the details of your credit history, assets, and income.

The more information you can provide about yourself and your plans for growth and expansion, the more likely you will be approved for funding.

You’ll need to check in regularly with your lender so that they can monitor how well you’re doing financially.

If there are any issues with how well things are going or if there’s some way they can help out by lowering interest rates or extending loans over longer periods (which would mean lower monthly payments), then they may be able to help with those sorts of things as well.

Why are interest rates higher in microfinance loans than in traditional banking?

There are two main reasons for this. The first is that the people who borrow in microfinance often have a higher risk of defaulting on their loans than those who borrow from banks.

They may be poor, young, or both. The second reason is that microfinancing loans tend to be smaller and shorter term than traditional bank loans

—meaning it would cost more for the bank if one of its borrowers defaulted on their loan than for a wealthier person with more capital at stake.

What’s the difference between microfinance and microcredit?

There is a lot of overlap between microfinance and microcredit, but they’re not the same.

Microfinance is a financial service that provides small loans to individuals and small businesses.

Microcredit, or microfinancing, is a form of microfinance that focuses on businesses and individuals who are too poor to qualify for traditional bank loans.

Self-employment of individuals.

Microfinance, as a tool for self-employment, can lead to the economy’s overall growth.

-This is possible because microfinance loans are given to those without access to banks and therefore cannot get a loan from them. It also helps people who are not considered profitable by banks and thus cannot get loans there.

The interest rates on such small loans are much higher than those charged by banks as they have increased risk attached to them.

So why do microcredit lenders charge higher rates? Because they have higher costs associated with lending out money:

  • They need offices or storefronts where borrowers can come in person to apply for their loans (called “branchless banking”).

-This requires rent payments and salaries for employees who handle customer service calls or walk-in customers at these locations – even if very few people come in during any given day.

  • They usually hire lawyers specializing in consumer debt law so they can legally protect themselves against being sued by borrowers if something goes wrong with their business model (like being unable to find enough new clients fast enough).


Microfinance is one of the essential tools for self-employment, and its growth can lead to the overall development of the economy.

It provides a platform for people to make their own decisions about their lives and helps them achieve financial independence.

Microfinance empowers people by providing them with access to affordable credit and savings products, enabling them to create employment opportunities.