Microfinance is the umbrella term for itsy, bitsy financial instruments, provided to low-income individuals. While often used for economic development in low-income countries, microfinance has made its way to low-income communities in high-income countries too, providing a favorable alternative to nasty loan shark options.
Microfinance includes the popular microcredit (small loans for low-income folk who don’t quality for regular loans) as well as checking and savings accounts, and micro-insurance products.
Rather than the focus being on what the lender needs, microfinance institutions focus more on what their borrowers need: easy access to small amounts of cash for business development, financial literacy education, and a safe place to save money.
Default rates on microcredit are incredibly low, and studies have shown that microfinance can create more businesses. However, it’s debatable that microfinance is reducing poverty and helping women, like some hope.
See: Microcredit.