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  • Microfinance is the provision of financial services to low-income clients or solidarity lending groups including consumers and the self-employed, who traditionally lack access to banking and related services.
  • Microfinance is a broad category of services, which includes microcredit. Microcredit is provision of credit services to poor clients. Although microcredit is one of the aspects of microfinance, conflation of the two terms is endemic in public discourse. Critics often attack microcredit while referring to it indiscriminately as either 'microcredit' or 'microfinance'.
  • 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.
  • 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.
  • Most MFIs started as not-for-profit organizations like NGOs (non-governmental organizations), credit unions and other financial cooperatives, and state-owned development and postal savings banks. An increasing number of MFIs are now organized as for-profit entities, often because it is a requirement to obtaining a license from banking authorities to offer savings services. For-profit MFIs may be organized as non-bank financial institutions (NBFIs), commercial banks that specialize in microfinance, or microfinance departments of full-service banks.
  • Microfinance has been growing rapidly with $25 billion currently at work in microfinance loans. It is estimated that the industry needs $250 billion to get capital to all the poor people who need it. The industry has been growing rapidly, and concerns have arisen that the rate of capital flowing into microfinance is a potential risk unless managed well.
  • Microfinance must be useful to poor households: helping them raise income, build up assets and/or cushion themselves against external shocks. "Microfinance can pay for itself."
  • Subsidies from donors and government are scarce and uncertain, and so to reach large numbers of poor people, microfinance must pay for itself. Microfinance means building permanent local institutions. Microfinance also means integrating the financial needs of poor people into a  country's mainstream financial system.
  • In the late 1980s microfinance institutions developed in the US. They served low income and marginalized minority communities. By 2007 there were 500 microfinance organizations operating in the US with 200 lending capital. Microfinance history in Canada took shape through the development of credit unions. These credit unions provided financial services to the Canadians who could not get access to traditional financial means. Two separate branches of credit unions developed in Canada to serve the financially marginalized segment of the population.
  • The mission of microfinance institutions is to increase access to credit. Microfinance institutions serve entrepreneurs who live or work in low-income neighborhoods, who are unable to receive traditional financing from banks. Organizations may target new immigrants, aboriginals, mental health and addiction populations and other marginalized groups.Microfinance in the U.S. context is defined as the extension of credit up to $35,000. In
    Canada, CRA guidelines restrict microfinance loans to a maximum of $25,000.
  • Microfinance is particularly inappropriate for the destitute, who may need grants or other public resources to improve their economic situation. Grants are a more efficient way to transfer resources to the destitute than are loans that many will not be unable to repay. Too much risk is placed on the MFI and client, when the only way a client can repay a loan is by starting a successful business. Basic requirements like food, shelter, and employment are often more urgently needed than financial services and should be appropriately funded by government and donor subsidies.
  • Microfinance’s success in terms of scale and poverty alleviation has drawn the attention of financial markets. The recent financial crisis has intensified this interest, as investors observe microfinance’s resiliency. A study by Krauss and Walter (2008) found that microfinance institutions (MFIs) had limited exposure to systemic risk due to low correlation to international capital markets. They also found MFIs were significantly less affected by macroeconomic shocks than commercial banks.
  • Microfinance institutions have long had faith in their profit potential; investors are starting to respond. By the end of 2007, microfinance investment vehicles (MIVs) had over US$ 5 billion assets under management. As of December 2009, there were 91 active MIVs with total assets of US$ 6.2 billion.

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