A Micro Miracle

1. Microfinance , also called microcredit, is a type of banking service that is provided to unemployed or low-income individuals or groups who otherwise have no access to financial services. While institutions participating in the area of microfinance are most often associated with lending (micro-loans can be anywhere from $100 to $25,000), many offer additional services, including bank accounts and micro-insurance products, and provide financial and business education. Ultimately, the goal of microfinance is to give impoverished people an opportunity to become self-sufficient .
2. Most of those trapped in poverty or with limited resources do not have enough income to do business with traditional financial institutions. Despite being excluded from banking services, however, those who live off of as little as $2 a day do attempt to save, borrow, acquire credit or insurance, and make payments on their debts. As a result, many look for help from family, friends and even loan sharks, who often charge exorbitant interest rates.
3. Microfinancing organizations support a wide range of activities, ranging from business start-up capital to educational programs that allow people to develop the skills necessary to succeed as an entrepreneur. These programs can focus on such skills as bookkeeping, cash flow management and even technical or professional skills. Unlike typical financing situations, in which the lender is primarily concerned with the borrower having enough collateral to cover the loan, many microfinance organizations focus on helping entrepreneurs succeed. 4. In many instances, people looking to join microfinance organizations are first required to take a basic money management class. Lessons focus on understanding interest rates and the concept of cash flow, how financing agreements and savings accounts work, how to budget, and how to manage debt. Once educated, customers are then allowed access to loans. The typical loan, sometimes as little as $100, does not seem like much to many in the developed world. However, to many impoverished people, this figure is enough to start a business or engage in other profitable activities.