Microfinance is the practice of providing financial services to low-income clients who are typically excluded from the formal banking sector. These products typically include small loans, sometimes as modest as $100, to people to start a business but increasingly savings accounts and insurance products are offered. Customers access these services through financial organizations called microfinance institutions (MFIs) and use the loans in different ways: some purchase a bicycle to transport vegetables to a market, or use the money to buy fertilizer for their crops, or a sewing machine to start a tailoring business. However, they all have one goal: to make a decent living and support their families’ basic needs. Many are able to send their children to school for the first time, allow all family members to eat three meals a day or make seemingly small home improvements that can actually have a significant effect on the health and well-being of a household such as replacing a mud floor with a cement floor.
The initial motivation for microfinance roughly 30 years ago was, to a great extent, gender neutral. The pioneering MFIs sought to provide credit to poor entrepreneurs who had no assets to pledge as collateral and, consequently, were denied access to capital by the formal banking sector. It quickly emerged, however, that women entrepreneurs invested the profits from their businesses in ways that would have a longer-lasting, more profound impact on the lives of their families and communities. The woman entrepreneur as the gateway to household stability became a fundamental premise of the microfinance business model and the success of microfinance as a poverty alleviation tool.