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Top 10 Things to know about Microfinance

Read the Full Article by James Allman-Gulino, KF11 Uganda on the Kiva Chronicles Website - For the regular visitors to the Kiva Fellows blog, I’m sure you have a good idea of how microfinance works and how Kiva fits in to the bigger picture.  However, newer visitors may be less familiar with some of the basic characteristics of the field.  With that in mind, I’ve created a “top 10” list of (hopefully) helpful facts about microfinance and Kiva’s operations:

1. Microfinance delivers financial services to poor individuals

Microfinance specifically offers services to those who don’t have adequate credit or who are otherwise “unbanked”, meaning they do not have access the services of a traditional financial institution like a bank.  This may be because they lack the assets needed to get a loan, are deemed too poor to merit targeting, or live in a remote area where there are no financial institutions.  Microfinance institutions (MFIs), however, adapt their services to cater to these populations and get them financial credit; MFIs also typically have an explicitly “social” goal of helping these people lift themselves out of poverty.  Microfinance exists all over the world (including in the United States), but is focused on the developing world due to poorer populations and lesser penetration of traditional banks.

2. Microfinance includes more than business loans

As you can see if you browse around Kiva, most microfinance takes the form of business loans, where an entrepreneur asks for an amount of loan capital to start or expand a productive business.  This is the prototypical image of microfinance that many people have.  However, not all people are successful entrepreneurs just because they can get credit!   Microfinance comes in many other forms as well.  For instance, microsavings can afford poor individuals a secure place to keep their cash earnings, and actually earn interest on their savings.  Other microfinance loan products might be specifically designed for housing (in a format like a traditional mortgage, just on a much smaller scale), or to pay for children’s school fees.  This range of services helps provide clients with the products most needed to pay for (or save for) important things in their lives.

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posted by Justin Forman | 8.26.2010 - 8:00 AM

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