Microfinance involves extending small loans, savings and other basic financial services to people that don’t currently have access to capital. It’s a key strategy in helping people living in poverty to become financially independent, which helps them become more resilient and better able to provide for their families in times of economic difficulty. Considering nearly half the world survives on less than $2 a day, microfinance is a vital solution. Here are six benefits of microfinance:
1. Access Banks simply won’t extend loans to those with little or no assets, and generally don’t engage in the small size of loans typically associated with microfinancing. Microfinancing is based on the philosophy that even small amounts of credit can help end the cycle of poverty.
2. Better loan repayment rates Microfinance tends to target women borrowers, who are statistically less likely to default on their loans than men. So these loans help empower women, and they are often safer investments for those loaning the funds.
3. Extending education Families receiving microfinancing are less likely to pull their children out of school for economic reasons.
4. Improved health and welfare Microfinancing can lead to improved access to clean water and better sanitation while also providing better access to health care.
5. Sustainability Even a small working capital loan of $100 can be enough to launch a small business in a developing country that could help the benefactor pull themselves and their family out of poverty. Watch Salamatu’s story of starting a rice-selling business in Sierra Leone.
6. Job creation Microfinancing can help create new employment opportunities, which has a beneficial impact on the local economy.