Breaking the word “microfinance” apart gives the first clues to its meaning. “Micro,” meaning small, refers to the small sums of capital that microfinance institutions rely on to help men and women around the world begin their ascent out of poverty. Microfinance institutions are, in effect, banks – but instead of targeting the wealthy or the middle class, they target the poor – those whom the financial sector has typically shunned. While a traditional bank might make loans ranging from thousands to hundreds of thousands of dollars, a microfinance institution typically loans sums ranging from $50-$500.
Credit is a fundamental facet of life. It has so permeated our society that a bad credit score can hinder a job search and a good one can open the door to great financial opportunities. Much of what most individuals have accomplished (such as buying a car, going to college, or starting a business) could not have been realized without the help of a loan. Credit in the developed world is often cheap and easy to access, but in the developing world it can be unavailable, prohibitively costly, or even dangerous when loan sharks become involved.