What is Microfinance?

People sometimes mistake microfinance for some sort of exploitation of the poor. Nothing could be further from the truth of this socially responsible form of support.

Microfinance is a hand up, not a hand out. Just as finance is about more than loans, so microfinance encompasses all financial services, including savings, insurance and community building projects. The ‘micro’ in microfinance comes from the target audience of small scale savers and customers: people who want to save 50 cents a week and whom the big banks won’t help.

This is how our partners at Women’s World Banking explain microfinance in practice:

Microfinance is the practice of providing financial services to low-income clients who are typically excluded from the formal banking sector. These products typically include small loans, sometimes as modest as $100, to people to start a business but increasingly savings accounts and insurance products are offered.

Customers access these services through financial organizations called microfinance institutions (MFIs) and use the loans in different ways: some purchase a bicycle to transport vegetables to a market, or use the money to buy fertilizer for their crops, or a sewing machine to start a tailoring business. However, they all have one goal: to make a decent living and support their families’ basic needs.

Many are able to send their children to school for the first time, allow all family members to eat three meals a day or make seemingly small home improvements that can actually have a significant effect on the health and well-being of a household, such as replacing a mud floor with a cement floor.

The world of microfinance is all about endowing dignity. Listen to Doctor Steven Funk, Race4Change commander in chief, speaking with enthusiasm about his passion for microfinance, and the joy he finds in helping people build better lives. Funk’s passion underpins the Race4Change effort: it’s a very strong foundation.