What is a Microfinance Institution (MFI)?
Donor funds are turned directly into loans and other financial services by a microfinance institution (MFI). A MFI is the local organization that provides the loans to the poor. These loans are used to start or expand small businesses. When they are repaid (including principal and interest), they are then lent out again to another borrower. The MFI staff is special trained to provide business advice, collect weekly, or bi-weekly payments, and handle loan and other financial transactions. Microfinance institution may also offer activities such as workshops on health and nutrition and the importance of educating children.
Quite simply, a microfinance institution is an organization that offers financial services to low income populations. Almost all of these offer microcredit and only take back small amounts of savings from their own borrowers, not from the general public. Within the microfinance industry, the term microfinance institution has come to refer to a wide range of organizations dedicated to providing these services: NGOs, credit unions, cooperatives, private commercial banks and non-bank financial institutions (some that have transformed from NGOs into regulated institutions) and parts of state-owned banks, for example. The image most of us have when we refer to MFIs is of a “financial NGO”, an NGO that is fully and virtually exclusively dedicated to offering financial services; in most cases microcredit NGOs are not allowed to capture savings deposits from the general public.
Quite simply, a microfinance institution is an organization that offers financial services to low income populations. Almost all of these offer microcredit and only take back small amounts of savings from their own borrowers, not from the general public. Within the microfinance industry, the term microfinance institution has come to refer to a wide range of organizations dedicated to providing these services: NGOs, credit unions, cooperatives, private commercial banks and non-bank financial institutions (some that have transformed from NGOs into regulated institutions) and parts of state-owned banks, for example. The image most of us have when we refer to MFIs is of a “financial NGO”, an NGO that is fully and virtually exclusively dedicated to offering financial services; in most cases microcredit NGOs are not allowed to capture savings deposits from the general public. This group of a few hundred NGOs have led the development of microcredit, and subsequently microfinance, the world ov
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. Various types of institutions offer microfinance: NBFCs, NGOs, cooperatives, private commercial banks and sectors of government banks. Some NGOs offer microcredit as one slice amongst a host of non-financial development activities. SKS has opted instead to focus solely on microfinance, to develop the most efficient and effective mechanisms to deliver finance to the poor.
A microfinance institution (MFI) is an organization that provides financial services to the poor. This very broad definition includes a wide range of providers that vary in their legal structure, mission, methodology, and sustainability. However, all share the common characteristic of providing financial services to a clientele poorer and more vulnerable than traditional bank clients. Historical context can help explain how specialized MFIs developed over the last few decades. Between the 1950s and 1970s, governments and donors focused on providing subsidized agricultural credit to small and marginal farmers, in hopes of raising productivity and incomes. During the 1980s, microenterprise credit concentrated on providing loans to poor women to invest in tiny businesses, enabling them to accumulate assets and raise household income and welfare. These experiments resulted in the emergence of nongovernmental organizations (NGOs) that provided financial services for the poor.
