Introduction

• Microfinance is defined as any activity that includes the provision of financial services such
as credit, savings, and insurance to low income individuals which fall just above the
nationally defined poverty line, and poor individuals which fall below that poverty line,
with the goal of creating social value. The creation of social value includes poverty
alleviation and the broader impact of improving livelihood opportunities through the
provision of capital for micro enterprise, and insurance and savings for risk mitigation and
consumption smoothing.
• It is a tool for empowerment of the poorest.
• Beneficiaries are from low income group.
• Loans are of small amount.
• Short duration loans
• Loans are offered without collateral.
• High frequency of payment
• Loans are generally taken for income generation purposes.
• Delivery is normally through Self Help Groups (SHGs).
• It is essentially for promoting self- employment.
• It is not just a financing system, but a tool for social change,
specially for women
• Demirguc-Kunt & Klapper (2012) estimate that 2.5 billion
working-age adults (more than half the world’s adult
population) still have no access to financial services delivered
by regulated financial institutions.
• An estimated demand for credit ranging from wide range of
financial services is $3 to $9 billion annually.
• The formal sector is barely able to provide $200 to $300
million.
• Close to 900 million of the world’s poor – those who survive on
less than $1 a day – live in the Asian and Pacific region.
• Most of the region’s poor or more than 670 million people
(about 135 million households), live in rural areas, although
urban poverty is also a growing problem in virtually all
countries in the region
• In 1974, an economics lecturer at the University of Chittagong, Bangladesh,
lent $27 to a group of impoverished villagers. Thirty years later, the lecturer,
Muhammad Yunus, won the Nobel peace prize and microfinance become the
worlds favorite development idea, the silver bullet that will cure world’s
poverty and spread the wealth-creating force of capitalism across the globe.
• Insignificant involvement of the profit-seeking private sector financial
institutions with private-risk capital.
• Continued high degree of dependency on concessional funds is another
major characteristic of the microfinance industry.
• The notion that credit is more important for the poor households than
savings services is widespread and dominant. Hence, it is supply driven.
• The industry is focused on rural areas.
• It rely heavily on group-lending technology for providing microcredit.