Microfinance

Microfinance initially had a limited definition – the provision of microloans to poor entrepreneurs and small businesses lacking access to bank and related services. The two main mechanisms for the delivery of financial services to such clients were: relationship-based banking for individual entrepreneurs and small businesses; and group-based models, where several entrepreneurs come together to apply for loans and other services as a group.

Over time, microfinance has emerged as a larger movement whose object is "a world in which as everyone, especially the poor and socially marginalized people and households have access to a wide range of affordable, high quality financial products and services, including not just credit but also savings, insurance, payment services, and fund transfers." [1] Many of those who promote microfinance generally believe that such access will help poor people out of poverty, including participants in the Microcredit Summit Campaign. For many, microfinance is a way to promote economic development, employment and growth through the support of micro-entrepreneurs and small businesses; for others it is a way for poor to manage their finances more effectively and take advantage of economic opportunities while managing the risks.

The terms have evolved – from micro-credit to micro-finance, and now 'financial inclusion'. Microfinance is a broad category of services, which includes microcredit. Microcredit is only about provision of credit services to poor clients; only one of the aspects of microfinance, and the two are often confused. Critics often point to some of the ills of micro-credit that can create indebtedness. Due to diverse contexts in which microfinance operates, and the broad range of microfinance services, it is neither possible nor wise to have a generalized view of impacts microfinance may create. Many studies have tried to assess its impacts. [2] Proponents often claim that microfinance lifts people out of poverty, but the evidence is mixed. What it does do, however, is enhance financial inclusion.

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