Before entering into the concept of microfinance, it is worthwhile to understand the term microcredit as both the terms are closely related with each other. The two main important systems that provide in microcredit are the formal and informal financial institutions, especially the financial institutions like banks, other cooperatives and other NGOs. These institutions provide microcredit to the people of lower income groups under different schemes for their basic livelihood and also support to start finance micro-enterprises. Microcredit, along with tax savings and other insurance products, is meant to provide financial services to the poorest, who do not have much access to the formal financial institutions. Microfinance, on the other hand, is considered to be an effective tool for poverty reduction. It enables the client to use the credit for periodic or emergency needs, in lean periods or for the education of the children in the family. Thus, the beneficiaries are not only safeguarded from moneylenders, but they also get an opportunity to develop as micro-entrepreneurs as well.
The
term Microfinance is the category of providing financial
assistance that is offered to many lower-income groups/individuals,
where the unit size per transaction is equally small
say "micro", typically lower than the average
GDP per capita. During early 1970s, Grameen Bank in
Bangladesh and ACCIÓN in Latin America have initiated
this concept of microfinance by lending extensively
to poorer sections of the society. Today, microfinance
covers a wide range of financial services like credit,
savings, remittances, insurance, and leasing, among
others - which are increasingly provided through a diversified
set of financial providers. |
