Microfinance Basics

Microfinance can be defined simply as financial services geared to the poor and very poor – a group which is traditionally excluded from formal banking institutions. For Oikocredit, it is also a tool in the global fight against poverty. Through microfinance institutions (MFIs), individuals, who are usually women, are able to access financial services such as loans, savings products, insurance, and other means to assist in achieving economic self-sufficiency and financial independence. 

Microfinance is generally geared toward the working poor - people who already have a source of income. These self-employed working poor have a diverse range of microenterprises, including small retail shops and artisanal production. In rural areas these income generating activities include food processing and trade, but by far most rural people are involved in farming. Borrowers are also typically women, who use their loans to reinvest in their businesses and have proven to be the most reliable credit risk for microfinance institutions. They are also more likely to use their business’ profits to invest in the health and education of their families, especially their children. By taking loans to expand these microenterprises, borrowers help both their own families and their communities and in doing so begin to break the cycle of poverty for families and communities worldwide.