Microfinance:

The term "microfinance" describes the range of financial products (such as

microloans, micro savings and micro-insurance products) that microfinance
institutions (MFIs) offer to their clients.
Microfinance began in the 1970s when social entrepreneurs began lending money on
a large scale to the working poor. One individual who gained worldwide recognition
for his work in microfinance is professor Muhammad Yunus who with Grameen
Bank, won the 2006 Nobel Peace Prize. Yunas and Grameen Bank demonstrated that
the poor have the ability to pull themselves out of poverty. Yunus also demonstrated
that loans made to the working poor, if properly structured, had very high repayment
rates. His work caught the attention of both social engineers and profit-seeking
investors.
Historically, the goal of microfinance was the alleviation of poverty. For many years,
microfinance had this primary social objective and so traditional MFIs consisted only
of non-governmental organizations (NGO), specialized microfinance banks and public
sector banks. More recently, the marketplace has been evolving. For example, some
non-profit MFIs are transforming themselves into profit-seeking institutions to
achieve greater strength, sustainability and market reach.

Objectives of Micro Finance:

A relatively new branch of financial services, microfinance aims to promote selfsufficiency and economic development among people who don't have access to the
traditional financial sector. They do this primarily by extending small loans without
the strict requirements of traditional lenders. Recipients are usually the poor and
"unbanked," but they also include people who are not poor but who lack the credit
standing to borrow money to start or grow a business.

(1)Access to Capital:
When people cant tap into the mainstream financial services system for capital to
start a business, they're forced to turn to "informal" sources -- relatives, friends and
even black-market lenders, or "loan sharks." Such sources are often unreliable, and
they can also be expensive, charging potentially ruinous interest rates that can strangle

a new business before it can get established. By lending money to such people,
microfinance institutions provide access to capital.
(2)Entrepreneurship and Self-Sufficiency:
Underprivileged people may have potentially profitable business ideas, but they
cannot put them into action because they lack sufficient capital for start-up costs.
"Microcredit" loans give clients just enough money to get their idea off the ground so
they can begin turning a profit. They can then pay off their micro loan and continue to
gain income from their venture indefinitely.
(3)Improved Standards of Living:

Microcredit ultimately aims to give impoverished people enough financial stability to

move from simply surviving to accruing savings. This gives them a certain amount of
protection from sudden financial problems. Savings also allow for educational
investment, improved nutrition, better living conditions and reduced illness.
Micro insurance, another segment of the microfinance sector, provides people the
ability to pay for health care when needed, so they can receive treatment for health
conditions before they become grave and more costly to treat.
(4)Women's Economic Advancement:
Women make up a large proportion of microfinance beneficiaries. Traditionally,
women (especially those in underdeveloped countries) have been unable to readily
participate in economic activity. Microfinance provides women with the financial
backing they need to start business ventures and actively participate in the economy.
The aim is to improve their status and make them more active in decision-making,
thus encouraging gender equality. According to the international Consultative Group
to Assist the Poor, microfinance institutions have even reported a decline in violence
against women in areas targeted by microfinance programs.

(5)Trickle-Down Benefits:
Microfinance lenders hope to improve not just the lives of their direct clients, but also
the health of their clients' communities. New business ventures can provide jobs,

thereby increasing income among community members and improving their overall
well-being.

Conclusion:
As we know that Capital and expertise are increasingly flowing into microfinance. So
Increased competition can be seen among MFIs. As they continue to develop their
internal operating capacities, more of the potential 80% of the market will be served.
Key players such as ratings agencies and institutional investors are also moving into
the marketplace, signalling the fact that a true market is developing. Although
microfinance has been happening since the 1970s, it is now much more relevant to
investors, finance professionals and individuals.