Microfinance facts for kids

A community-based savings bank in Cambodia

Microfinance is a way to help people who usually can't get services from regular banks or insurance companies. It's like giving a helping hand to those who need it most, often in developing countries. This is an important part of development aid, which helps improve living conditions.

Regular banks often find it too expensive to offer small loans or insurance to very poor people. That's where microfinance comes in! Special groups, often called NGOs (which are non-profit organizations), step in to provide these services.

• They build personal relationships with people, focusing on helping them rather than just making money.
• Often, several people work together to apply for a loan or insurance. This teamwork helps everyone succeed.

For example, microfinance can help someone in a developing country get a small loan to start a tiny business, like selling vegetables or making crafts. This can help them earn money for their family and improve their lives.

What is Microfinance?

Microfinance is all about giving small financial services to people who are poor or have low incomes. These services are usually not offered by big banks. It's designed to help people become more independent and improve their lives.

Why is Microfinance Needed?

Many people around the world don't have access to basic financial services. This means they can't get a loan to start a business, save money safely, or get insurance to protect themselves from unexpected problems. Microfinance fills this gap. It helps people:

• Start or grow small businesses.
• Manage their money better.
• Deal with emergencies.
• Invest in things like education or health.

How Does Microfinance Work?

Microfinance often works differently from traditional banking. Instead of large loans, it focuses on very small amounts of money.

Small Loans (Microcredit)

One of the most common parts of microfinance is called microcredit. This is when people get very small loans. These loans are often used to:

• Buy tools or materials for a small business.
• Purchase seeds for farming.
• Invest in livestock like goats or chickens.

The idea is that even a small amount of money can make a big difference for someone trying to earn a living.

Group Lending

Sometimes, microfinance uses a method called group lending. Instead of one person getting a loan, a group of people (often friends or neighbors) apply together.

• Everyone in the group helps each other.
• If one person struggles to repay, the others might help them.
• This system encourages responsibility and teamwork.

Other Services

Besides loans, microfinance can also offer other helpful services:

• Microsavings: This allows people to save very small amounts of money safely.
• Microinsurance: This provides affordable insurance, for example, to protect against crop failure or illness.
• Financial Education: Teaching people how to manage their money, save, and plan for the future.

Who Benefits from Microfinance?

Microfinance mostly helps people in developing countries, especially those living in rural areas or poor urban neighborhoods.

• Women: A large number of microfinance clients are women. Giving women access to financial tools often helps their whole family and community.
• Small Business Owners: People who want to start or expand tiny businesses, like street vendors, craft makers, or small farmers.
• Families: By helping individuals earn more, microfinance can improve a family's health, education, and overall well-being.

Impact of Microfinance

Microfinance has had a big impact around the world. It helps people become more self-sufficient and can reduce poverty.

• It gives people a chance to improve their lives without relying on charity.
• It can help local economies grow by supporting small businesses.
• It empowers individuals, especially women, to take control of their financial future.

Images for kids

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  An Afghan woman doing microfinanced sewing work

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  Financial needs and financial services.

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  Saving up

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  Saving down

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  This shop in South Sudan was opened using money borrowed from the Finance Sudan Limited (FSL) Program. This program was established in 2006 as one of the only microfinance lenders in the country.

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  Example of a loan contract, using flat rate calculation, from rural Cambodia. Loan is for 400,000 riels at 4% flat (16,000 riels) interest per month.

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  These goats are being raised by Rwandan women as part of a farm cooperative funded by microfinance.

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  Women of Malawi posing with their savings box

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  A group of Indian women have assembled to make bamboo products that they intend to resell.

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  Two women talk about financial matters. The woman on the right is a loan officer for the Small Enterprise Foundation (SEF). The conversation shown is taking place in Tzaneen, South Africa in February 2010.

See also

In Spanish: Microfinanza para niños