What is Microfinance?


The best thing you could do is to explore ways of helping the poor.

There are a lot of ways to MAKE A DIFFERENCE.

The first step is the hardest to make.  But that single small step can lead you to your longest journey. Just make that one small first step. You are brave enough to do it, I know.

And, the best reminder is that making a difference in changing and saving lives does not need much money. It only needs DETERMINATION.

Let us start with small things and small capital. Do it with Microfinancing.

***

Microfinance is defined as a small fund management.

The word ‘micro’ means smaller than what is in focus, e.g., microscopic. While finance is ‘fund management’.

That is a simplified definition, though.

Microfinance is a system of giving out small amount of loans to poor entrepreneurs accompanied by insurance and fund transfer.

We have to do a lot of definition of  terms here.

What is small amount?

If we mean ‘small amount‘, it should not exceed $3,000.00. The maximum amount of microfinance amount in the Philippines is Php 150,000.00 which is equivalent to more or less $3,000.00.

How about the word ‘loan’?

If we talked about ‘loan‘, it is the ‘redistribution of financial assets over time, between the lender and the borrower. (wikipidia.org) Usually, a loan is provided at cost, i.e., interest. A loan has also a term of re-payments.

Re-payment means an scheduled time of giving back what was borrowed.

Who is poor?

We have problems on the definition of ‘poor‘, though. It all depends on the ‘poverty threshold’ defined by certain communities. In Microfinance, we could infer that ‘poor’ are those who have income lesser than what they need. The need here is the basic necessities of life, i.e., food, clothing, shelter and security.

Entrepreneur?

Let us focus now with the word ‘entrepreneur‘. Entrepreneur ‘tends to identify a market opportunity and exploit it by organizing their resources effectively to accomplish an outcome that changes existing interactions within a given sector’ (wikipedia.org). Meaning, those who are engaging into some activities that earned them a decent return, may it be an income or comfort.

We will not dwell too much with the words ‘insurance‘ and ‘fund transfer’ for now. I will be making some posts on these topics sooner.

But, the basic understanding of including ‘insurance’ in the microfinance system is that to caution the effects to the poor people’s living condition of losing someone in their family.

For fund transfer, this is only an added service when poor people–who are actively engaged in an entrepreneurial activity–need to receive and/or send money from or to their love ones or partners in business or to any people involved in their income-generation activities.

ADB defines Microfinance

To sum it up, Asian Development Bank defines microfinance as the provision of a broad range of financial services such as

  • deposits
  • loans
  • payment services
  • money transfers
  • insurance to poor and low-income households and their microenterprises

Rest assured, we will be dealing with these characteristics as we go along.

For now, just think of the challenges of changing and saving lives. Take part in this cause.

You may comment below or email me or contact me for your additional information or questions.

Microfinance is also a Self-Help Opportunity. Don’t lose it.

You may also want know about the History and Origin of Microfinance.

Good night and so long. I expect to hear from you soon.

Florentino

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