Monday, April 25, 2011

What is Microfinance?

As I have started telling people about my upcoming adventures to work in microfinance in the Dominican Republic, I've noticed that my exciting news is repeatedly met with a blank stare that is usually slowly followed with "What exactly is microfinance?"

Microfinance is a relatively new method of fighting poverty.  Briefly and broadly defined, it is the provision of banking services for low-income individuals who normally would not have access to these types of resources.  Stated even more simply, it is a bank for poor people.  While most Americans have access to traditional banking services, in most third world countries, traditional banks only offer their services to low risk clients who can back up their loan with some type of physical collateral. (aka "the wealthy") Thus, people living in poverty either do not have an opportunity to obtain a loan or the interest rate on the loan is extremely high.  Microfinance banks, however, have challenged the "traditional bank" thinking and have discovered ways to provide small loans and financial services to impoverished people.  Clients, which are generally women, use this money to start or improve small businesses.  In addition, organizations teach basic principles such as basic accounting principles, budgeting, and the power of supply and demand.  The hope is that these services can empower the clients to create a better  life for themselves.  Instead of simply giving them a handout, clients are given a hand up.  It is an incredible way to help the poor while allowing them to keep the self dignity and respect they deserve.  For a more in depth look at Microfinance, try checking out

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