Microfinance Organizations: Who Are They and How Do They Work

 

What is Microfinance?

Some consider Microfinance a movement with the objective of creating a world in which as many poor and near-poor households as possible have permanent access to an appropriate range of high quality financial services. (wikipedia)

 

Microfinance for many brings to mind a model of offering small loans to entrepreneurs in developing countries but it really applies to creating permanent access to all banking services that include savings plans, loans, and insurance policies, fostering income-producing activities, build assets, stabilize consumption, and protect against risks.

 

In short the microfinance concept aims to give people with the lowest incomes the means to open their own businesses and carry out their business activities, so that they may thrive on their own.  This is very way to decrease economic and income inequalities worldwide.  Please refer to our previous blog on Income Inequality and its negative impact upon societies.  

Here is a look at few microfinance organizations:  

Lift Fund

LIFT is a multi-donor trust fund that improves the lives and prospects of rural poor people in Myanmar, with generous contributions from the United Kingdom, European Union, Australia, Denmark, France, Ireland, Italy, Luxembourg, the Netherlands, New Zealand, Switzerland, Sweden, and the United States of America. From the private sector, the Mitsubishi Corporation is a donor. To date, the donors have committed more than USD 400 million to LIFT.

LIFT is much more than a funding body. Aside from financing 147 projects to date, LIFT provides technical expertise,  targeted research and its position of oversight to improve programme design and cohesion for better overall impact. LIFT also works closely with the Government of Myanmar to promote pro-poor policies.

LIFT’s goal is to sustainably reduce the number of people in Myanmar living in poverty and hunger, and to ensure that Myanmar’s rural transformation is inclusive. We work to achieve these four outcomes:

Opportunity Fund

Opportunity Fund provides microfinancing to entrepreneurs who do not qualify for traditional lending.Opportunity Fund invests in small US businesses that have been shut out of the financial mainstream. As a founding member and signatory to the Small Business Borrower’s Bill of Rights, we believe in the important role small businesses play in our communities and the economy. Our mission is to help them succeed. Opportunity Fund is backed by investors including Bank of America, Goldman Sachs, JP Morgan Chase Foundation, Knight Foundation and the Calvert Foundation. We are one of the largest non-profit lenders to small businesses in the country.  In fiscal year 2016, we made over $60M in loans to help more than 2,200 small business owners invest in their businesses.

Grameen America

The organization grants loans, savings programs, financial education, and credit establishment to women who live in poverty.  They take a holistic approach to helping women gain the skills and finances necessary to succeed in their own small business.

Grameen Bank holds the distinction of being a Nobel Peace Prize-winning MFI. Apart from providing microcredit and other banking services, it also launched an award-winning low-cost housing program in 1998.

 

In 2016, the following were considered the most influential Microfinancing Institutions or MFIs:

 

Bank Rakyat Indonesia

Bank Rakyat is 70% government-owned and operates primarily as a small-scale and microfinance lender, with more than 30 million retail banking clients.  

BRAC

BRAC provides an extensive range of services in the areas of human rights, education, health and economic development. This includes grants, small business loans, housing assistance and microsavings services.

Kiva Microfunds

Kiva Microfunds is a non-profit organization that enables people to lend money via the Internet to low-income business owners and students in over 80 countries. Kiva’s mission is “to connect people through lending to alleviate poverty.”

How Microfinancing Works

People looking to join microfinance organizations are required to take a basic money management class focused on methods to grow savings, learn how banks work, how to budget, manage debt and maintain cash flow.