Microfinance – Basic facts

[Saleeqa Batool]

Micro credit is a Program for extending small loans and other banking services to very poor people for self-employment projects that generate income, allowing them to care for themselves and their families.

Basic financial services, like credit, saving and insurance, give people an opportunity and Protection against uncertain by But with little income or collateral, poor people are seldom able to borrow money from banks and other formal financial institutions. Even when they do have income or collateral, the amounts they require are often too small to appeal to banks. Instead, poor people tend to rely on informal financial relationships, like moneylenders, that usually come at a very high cost.

Microfinance institutions, such as financial co-operatives, financial non-governmental organizations, and rural banks, among others, can provide small amount of credit at a reasonable interest rates. A loan of as little as US$50 can give poor people a chance to set up their own small business and possibly create more jobs. It can also help secure a family’s food supply, medicine and children’s education.

Although credit is an important part of microfinance, it is just one of the diverse financial services that poor people need to improve their lives, such as saving account, basic insurance options, and affordable remittance systems to best manage their assets and generate income.

Still, only a fraction of the world’s poorest people have access to such services. While the microfinance sector continues to grow, at least 400 million poor and low-income people are not being served by microfinance program.

Comprehensive impact studies have demonstrated that: (i) microfinance helps very poor householders meet Basic needs and protect against risks; (ii) the use of financial services by low-income households is associated with improvement in household economic welfare and enterprise stability or growth; (iii) by supporting women’s economic participation, microfinance helps to empower women, thus promoting gender-equity and improving household wellbeing; (iv) for almost all significant impacts, the magnitude of impact is positively related to the length of time that client have been in the program.

The demand for microfinance services is largely unmet. Estimates of the global demand ranges from 400 to 500 million households, of which only around 30 million are reported to have access to sustainable microfinance services in 2002. Although many poor and low-income people do not yet have access to financial services, the number of customers that use microfinance has growth between 25 and 30 percent annually over the part five years.

Data from the Micro Banking Bulletin reports that 63 of the world’s top MFIs had an average rate of return, after adjusting for inflation and after taking out subsidies program might have received, 2.5 per cent of total asset. This compares favourably with returns in the commercial banking sector and gives credence to the hope of may that microfinance can be sufficiently attractive to mainstream into the retails banking sector.



The World Bank estimates that there are now over 7,000 microfinance institution, serving some 16 million poor people in developing countries. The total cash turnover of MFIs worldwide is estimated at US$2.5bn and the potential for new growth is outstanding.


The Microfinance Summit estimates that US$2.1bn is needed to provide microfinance 100 million of the world’s poorest families. The Summit planners say it should be possible to raise US$2bn from borrowers’ saving alone.


It is estimated that, worldwide these are 13 million microcredit borrowers, with US$7bn in outstanding loans and generating repayment rates of 97 per cent.


Fewer than two per cent of poor people have access to financial services (credit or savings) from sources other than moneylenders.


Under 10 million of the 500 million people who run micro and small enterprises have access to finance to finance support for their business.


There is a potential demand for microcredit services from million borrowers.

The number of microfinance customers is increasing by, on average, 34 per cent a year, yet only four per cent of the potential end market has been captured so far.