Micro Finance

Micro finance is the offering of financial services to people who live in poor conditions. Many developing countries have continually used this financial services to help in alleviation of global poverty. The financial services offered in micro finance include: credits, loans, insurance, training, and saving. Initially micro finance industry was characterized by provision of small loans to promising entrepreneurs to start or expand their business. Over the years, the industry has grown and has expanded its micro lending services to meet the growing number of clients in need of micro finance services. Micro finance services are generated from micro lending approaches which try to encourage self sufficiency and end poverty in many developing countries.

In general, micro finance customers are low income and poor people who cannot access other financial institutions. Most of them are self employed and household based entrepreneurs. Recently, some formal financial institutions have started developing a range micro finance products to meet the needs of pensioners, salaried workers and other clients. Most of microfinance institutions started as non-profit organizations, credit unions, state owned development and postal savings banks.

Micro finance institutions offer micro lending services to either a group or an individual. In group lending, a number of people gain access to microcredit by providing a collateral or guaranteeing a loan via a group repayment plan. Individual lending focuses on provision of microcredit to one person and does not necessarily require other people to guarantee for the loan.

Micro finance has many benefits to both the micro finance institutions and their clients. First, it creates a long term financial independence to poor and low income people living in developing countries. This is because those poor stricken people do not have to rely on aids from rich country. The clients are taught on how to manage the microcredit they get, and how they can create their own businesses and grow wealth.
Micro finance has also empowered women and the youth to create self employment jobs and small businesses. This way the youth and women can sustain themselves and enables them to stop looking on white color jobs which may be scarce to find. Also gender equality is promoted through women empowerment.

Micro finance institution gains profit from the small interest they get from the micro credit offered to their clients. This has enabled many of these institutions to spread micro finance services to rural and remote areas, therefore, promoting industrialization in rural settings. This alleviates poverty in those areas and help the people to develop their agricultural and trading activities.
Another benefit of micro finance is that poor people are able to access loans unlike before, when banks and other formal financial institutions could not give loans to unemployed and small business entrepreneurs. This way, many the small entrepreneurs are able to grow their business even to a level of creating more income generating companies and providing employment to many people. In conclusion, micro finance industry is sustainable and profitable just like any other commercial banks. The future of this industry is also very promising, since many governments have supported micro finance industries over the years.