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1. What is microfinance? 9839985037- sunny
“Microfinance” is often defined as financial services for poor and low-income clients offered by
different types of service providers. In practice, the term is often used more narrowly to refer to
loans and other services from providers that identify themselves as “microfinance institutions”
(MFIs). These institutions commonly tend to use new methods developed over the last 30 years
to deliver very small loans to unsalaried borrowers, taking little or no collateral. These methods
include group lending and liability, pre-loan savings requirements, gradually increasing loan sizes,
and an implicit guarantee of ready access to future loans if present loans are repaid fully and
promptly.
More broadly, microfinance refers to a movement that envisions a world in which low-income
households have permanent access to a range of high quality and affordable financial services
offered by a range of retail providers to finance income-producing activities, build assets,
stabilize consumption, and protect against risks. These services include savings, credit,
insurance, remittances, and payments, and others.
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2. What is the difference between microfinance and microcredit?
Microcredit refers to very small loans for unsalaried borrowers with little or no collateral, provided
by legally registered institutions. Currently, consumer credit provided to salaried workers based
on automated credit scoring is usually not included in the definition of microcredit, although this
may change.
Microfinance typically refers to a range of financial services including credit, savings, insurance,
money transfers, and other financial products provided by different service providers, targeted at
poor and low-income people.
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3. How is microcredit different from other targeted development lending?
In addition to the new techniques explained in FAQ #1, the microcredit approach has tried to
avoid the pitfalls of an earlier generation of targeted development lending. The approach focuses
on fostering better repayment discipline and charging interest rates that cover the costs of credit
delivery, both of which support development of sustainable institutions that can continue to
expand their services in the future.

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4. Who are microfinance clients?
Typical microfinance clients are poor and low-income people that do not have access to other
formal financial institutions. Microfinance clients are often self-employed, household-based
entrepreneurs. Their diverse “microenterprises” include small retail shops, street vending,
artisanal manufacture, and service provision. In rural areas, microentrepreneurs often have small
income-generating activities such as food processing and trade; some but far from all are
farmers.
Hard data on the poverty status of clients is limited, but tends to suggest that most microfinance
clients fall near the poverty line, both above and below. Households in the poorest 10% of the
population, including the destitute, are not traditional microcredit clients because they lack stable
cash flows to repay loans. Most clients below the poverty line are in the upper half of the poor. It
is clear, however, that some MFIs can serve clients at the higher end of the bottom half. Women
often comprise the majority of clients.
Over the past decade, some financial institutions have started developing a range of products to
meet the needs of other clients, including pensioners and salaried workers. Although little is
known about the universe of potential clients, the number of households without effective access
to financial services is enormous.
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5. How do borrowers use microcredit loans?
Many microcredit borrowers have microenterprisesunsalaried, informal income-generating
activities. However, microloans may not predominantly be used to start or finance
microenterprises. Scattered research suggests that only half or less of loan proceeds are used for
business purposes. The remainder supports a wide range of household cash management
needs, including stabilizing consumption and spreading out large, lumpy cash needs like
education fees, medical expenses, or lifecycle events such as weddings and funerals.
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6. What kinds of institutions deliver microfinance?
Most MFIs started as not-for-profit organizations like NGOs (non-governmental organizations),

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 1. What is microfinance? 9839985037- sunny “Microfinance” is often defined as financial services for poor and low-income clients offered by different types of service providers. In practice, the term is often used more narrowly to refer to loans and other services from providers that identify themselves as “microfinance institutions” (MFIs). These institutions commonly tend to use new methods developed over the last 30 years to deliver very small loans to unsalaried borrowers, taking little or no collateral. These methods include group lending and liability, pre-loan savings requirements, gradually increasing loan sizes, and an implicit guarantee of ready access to future loans if present loans are repaid fully and promptly. More broadly, microfinance refers to a movement that envisions a world in which low-income households have permanent access to a range of high quality and affordable financial services offered by a range of retail providers to finance  income-producing activities, build assets, stabilize consumption, and protect against risks. These services include savings, credit, insurance, remittances, and payments, and others. Send us feedback on this answer or suggest your own! back to top 2. What is the difference between microfinance and microcredit? Microcredit refers to very small loans for unsalaried borrowers with little or no collateral, provided by legally registered institutions. Currently, consumer credit provided to salaried workers based o ...
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