Microfinance

An Afghan woman doing microfinanced sewing work

Microfinance is the provision of financial services to individuals and small businesses, particularly those with low incomes and limited access to conventional banking and related financial services. It encompasses services such as microcredit, savings, checking accounts, microinsurance, and payment systems.

Modern microfinance developed in the 1970s, particularly through the work of Muhammad Yunus and the Grameen Bank in Bangladesh, although its historical roots extend to earlier cooperative lending and savings initiatives in Europe. Originally associated with small loans to entrepreneurs lacking access to credit, microfinance later expanded to encompass a broader range of financial services and evolved into a wider approach to financial inclusion aimed at expanding access to financial services for underserved populations.

Microfinance has been promoted as a means of reducing poverty, supporting economic development, fostering entrepreneurship, and improving households' ability to manage financial risks. Its effectiveness and social impact remain subjects of debate, particularly regarding poverty reduction, borrower over-indebtedness, interest rates, financial sustainability, and its impact on women and low-income communities.

Some recent developments have been the expansion of digital financial services and greater emphasis on understanding the wider ecosystem in which microfinance institutions operate to improve the sustainability and effectiveness of financial inclusion initiatives.

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