Small Money Big Impact

CHAPTER 5Microfinance Institutions

The key to ending extreme poverty is to enable the poorest of the poor to get their foot on the ladder of development. . .the poorest of the poor are stuck beneath it. They lack the minimum amount of capital necessary to get a foothold, and therefore need a boost up to the first rung.

Jeffrey Sachs¹

Microfinance institutions (MFIs) are of great importance in microfinance because they provide services to micro entrepreneurs. MFIs are a blend of a range of service providers that use their market position to supply small‐scale financial services to people who are usually excluded from the benefits of a sound financial system.

MFIs employ savings deposits and loans as well as donations and subsidies for funding purposes. They primarily provide financial services in the form of microloans and savings deposits. Often, however, they also offer services such as micro insurance and micro pensions.

Credit granting, deposit taking and a wide range of non‐financial services foster the financial integration of the poorest of the poor and promote the fight against poverty in a sustainable manner. By means of provident loan granting, optimal asset allocation can be achieved. This boosts productivity and at the same time allows individuals to benefit socially and economically, ultimately much to the benefit of the entire national economy.

5.1 DEFINITION ...