Overview:
When you provide small capital sums to entrepreneurs
Institutions that provide small loans to people who do not have access to banking facilities
"Small loan" varies based on region/country
Important source of finance in developing [low-income] countries
Financial institutions that provide small sums to people who would otherwise find it difficult to get loans
Key Principles:
A powerful tool to eradicate poverty, as the poor will need a variety of financial services, which are provided by the institutions
Concentrates on building a financial system for the poor
[Strives to build permanent local financial institutions that aim to attract domestic deposits, recycle them into loans, and provide other financial services] - REPHRASE
Advantages:
Can help start new companies which have the opportunities and ability to become very successful
Can also increase average household incomes
Proven to improve quality of life
Can help break the cycle of poverty
Can help the economy of a developing country
Can disperse sums under urgency
Higher chance of women getting loans (in comparison to banks)
Can greatly impact gender equality
Promote self-sufficiency and entrepreneurship
Regions with prevalent microfinance institutions have higher rates of entrepreneurship
Can help people develop a good credit, which they can use to take out larger loans with banks
Disadvantages:
Interest rates can be high
Institutions accumulate funds through private equity, so they are under constant pressure to create more profit for their investor, meaning they crank up interest rates
Program is set up in a way that encourages people to take on debts they cannot repay
Small loan amounts
Very difficult to properly execute
Only available to approximately 20% of the 3 billion people who qualify as the world's poor
Examples:
Pacific Community Ventures
Pacific Community Ventures is a financial institution that invests in small businesses, creates good jobs for working people, and makes markets work for social good. Their motto is "Good Jobs, Good Business" that combines affordable loans with pro-bono advising.
Grameen America
Grameen America is a non-profit microfinance institution that operates in the US. They provide microloans to people living below the poverty line to start or expand businesses. Their microloans exceed no more than $2000.
Vision Fund International
VisionFund is a microfinance institution that operates all over the world. They provide multiple services like loans, insurance and savings. They focus on women empowerment a lot, as well as helping those in rural areas and in places of crisis and conflict. Their mission is to empower people out of poverty for good by giving them funds rooted in the love of Christ.