What is a microfinance institution

what is a microfinance institution

Microfinance

Dec 01,  · What is a Microfinance Institution? Microfinance institutions, or MFIs, come in all shapes and sizes. They can differ in scale, experience, legal statute, strategy and budget. What lies at the heart of the microfinance system is the issue of reliability. Reliability determines how smoothly an MFI operates. First of all, microcredit cannot exist without microfinance institutions. Microfinance is a banking service provided to unemployed or low-income individuals or groups who otherwise would have no other access to financial services. Microfinance allows people to .

Poverty is the main cause of concern in improving the economic status of developing countries. A microfinance institution is an organization that offers financial services to low income populations. Almost all give loans to their members, and many offer insurance, deposit and other services. A great scale of organizations is microfinannce as microfinance institutes.

They are those that offer credits and other financial services to the representatives of poor strata of population except for extremely poor strata. Microfinance is increasingly being considered as one of the most effective tools of reducing poverty by enabling microcredit to the financial poor.

Microfinance has a significant role in bridging the gap between the formal financial institutions and the rural poor. The Micro Finance Institutions MFIs accesses financial resources from the Banks and other mainstream Financial Institutions and provide financial and support services to the poor.

MFIs are the pivotal overseas organizations in each country that make individual microcredit loans directly to villagers, microentrepreneurs, impoverished women and poor families. An overseas MFI is like a small bank with the same challenges and capital needs confronting any expanding small venture but with the added responsibility of serving economically-marginalized populations. Many MFIs are creditworthy and well-run with proven records of success, many are operationally self-sufficient.

Various types of institutions offer microfinance: credit unions, commercial banks, NGOs Non-governmental Organizations how to do video conference, cooperatives, and sectors of government banks. NGOs mainly work in remote rural areas thereby providing financial services to the persons with whzt access to banking services.

Regulated, transformed mkcrofinance differ from nonprofits in that they are held to performance and capital adequacy standards and are supervised by a financial authority, typically the central bank of the country where they are registered.

A transformed MFI also attracts equity investors. The equity investors want to ensure what is a microfinance institution the values of their investments are maintained or enhanced how to program sonicview remote elect Board members who share a common vision for the new for-profit institution.

Among transformed MFIs, varying classifications of regulated institutions exist, the strictest being banks — rural banks and thrift banks — followed by non-bank financial institutions.

Different microfinane have varied names for these regulated MFIs. The microfinance sector consistently focuses on understanding the needs of the poor and on devising better ways of delivering services in line with their requirements, developing the most what is a microfinance institution and effective mechanisms to deliver finance to the poor. Continuous efforts towards automation of operations is steady improving in efficiency. The inxtitution systems have also helped accelerate the growth rate of the microfinance sector.

Many institutions practice microfinance, or raise funds for microfinance, including the following:. Your email address will not be published. Save my name, email, and website in this browser for the next time What is a microfinance institution comment. Skip to content. Leave a Reply Cancel reply Your email address will not be published.

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Nov 27,  · The term microfinance encompasses microloans, micro-savings, and microinsurance. Microfinance institutions provide small loans and other resources to business owners and entrepreneurs to help them get their businesses off the ground. Many of the recipients are in developing countries, and could otherwise not obtain a traditional loan. ? ?. Mar 14,  · At a basic level, I would define a microfinance institution (MFI) as a financial institution that provides small loans to people who otherwise wouldn’t have access to credit. The definition of “small loans” depends on the geographic context.

First of all, microcredit cannot exist without microfinance institutions. These organizations provide hard-to-find financial services to local individuals and groups. MFIs aim to promote economic activity among low-income earners, for whom access to official banking services is impossible or nearly so. An MFI's reach can vary tremendously. See About Microcredit. MFIs are organized in such a way that they provide quality viable long-term services. Generally speaking, an MFI is made up of a head office and a number of credit agencies.

The agencies are located in different parts of the region in question. Their credit agents carefully select each and every client and take charge of loan approvals, loan reimbursements, savings management, and other services. As they understand how to create economic activity, they act as business advisors and provide precious counsel to borrowers. An MFI can fall into different legal categories depending on the country in which the institution is based.

An MFI could be an NGO, a credit cooperative or a non-bank financial institution; its particular statute would dictate what kind of funding it receives.

An NGO is not allowed to accept borrowers' savings and must be financially supported by various subsidies and bank loans. Meanwhile, a credit cooperative relies heavily on client savings. As for the non-bank financial institution, this organization may take some savings deposits but it is mostly financed by shareholders.

An MFI is characterized as having dual objectives—they are both social and financial. The former aim means that the MFI contributes to development and fights against poverty. The latter objective stresses that the MFI must remain profitable enough to continue operating1. This balance is not always easy to achieve. Each MFI's strategy, whether it is more community-centered or more economic, will determine operating decisions. The viability of a microfinance institution is based on several factors: compatibility with the environment, strong on-field knowledge, clear governance, and financial health.

In terms of financial stability, an MFI must be in no hurry. A promising MFI needs to make it through an average of five years before finding a steady working rhythm. This could take even longer in a rural environment with a low-density population. To be sustainable, an MFI must keep a balanced budget, all while growing to meet the needs of an expanding clientele. Which MFIs can be counted on? Anne-Sophie Perrachon, Operations Director at Microworld, says, "We use clear and objective criteria: solid financial history, good performance in terms of social benefits, and transparency.

Although these demands seem simple, few MFIs actually meet these expectations2. As microfinance continues its rigorous development, the number of trustworthy microfinance institutions will, and must, go on the rise.

The largest databank can be found at MIX at www. MicroWorld sur. Log in Register. My selection 0. This article is part of the special report: Understand Microcredit. Microfinance in brief Online microcredit Story of microcredit Lending is not giving.

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