Microfinance

Microfinance is defined as, financial services such as savings accounts, insurance funds and credit provided to poor and low income clients so as to help them increase their income, thereby improving their standard of living. Loans to those people who live below the poverty line.

Microcredit is part of microfinance, which provides a wider range of financial services, especially savings accounts, to the poor. Modern microcredit is generally considered to have originated with the Grameen Bank founded in Bangladesh in 1983.

Muhammad Yunus (b. 1940) Economist and Nobel Peace Laureate Muhammad Yunus has become internationally renowned for his revolutionary system of micro-credit (small loans to entrepreneurs too poor to qualify for traditional bank loans) that has helped millions to escape poverty.

There shall be three categories of Microfinance Banks (MFBs). A Unit Microfinance Bank is authorized to operate in one location. It shall be required to have a minimum paid up capital of N20 million (twenty million Naira) and is prohibited from having branches and cash centres.

Microfinance Banks are financial institutions that grant access to credit facilities to individuals, small businesses and organization. The loans that micro-finance banks give to people and small businesses are known as micro loans.

Commercial banks usually provide financial services to people and corporate who have their accounts in their banks, while Microfinance institutions provide financial services to usually rural households with low income and asset base.

The idea is to provide extremely poor people with small loans so they can start and operate a business. The borrowers are able to save money and pay back the loan over time. Microfinance helps support financial security because it is not just a donation.

A lack of sanitation creates the potential of illness that prevents working days. Microfinance changes this by making more money available. When basic needs are met, families can then invest into better wells, better sanitation, and afford the time it may take to access the health care they need.

The major objectives of microfinance are therefore providing the poor with access to financial services as well as an opportunity for them to build their financial capacity and ability to grow to financial self-sufficiency.

Microfinance Goes Digital: Opportunities and challenges in enabling pro-poor financial institutions to connect to the digital ecosystem. The ability to provide financial services via digital channels is opening up new opportunities to reach populations that previously were unserved.

Digital finance is a powerful means to expand access beyond financial services to other sectors, including agriculture, transportation, water, health, education, and clean energy.

Various types of institutions offer microfinance: credit unions, commercial banks, NGOs (Non-governmental Organizations), cooperatives, and sectors of government banks. The emergence of “for-profit” MFIs is growing. In India, these ‘for-profit’ MFIs are referred to as Non-Banking Financial Companies (NBFC).

DIGITAL FINANCIAL SERVICES (DFS) Definition. The broad range of financial services accessed and delivered through digital channels, including payments, credit, savings, remittances and insurance. The digital financial services (DFS) concept includes mobile financial services (MFS).

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