What is microfinance?

The Consultative Group to Assist the Poor (CGAP) defines 'microfinance' as 'the supply of loans, savings and other basic financial services to the poor'.

Different stakeholders see microfinance from their own perspective and so, tend to define it from their angle. Governments see it as social protection. Donors focus on its potential to secure poverty reduction. Commercial insurers see its potential as a way of reaching large under-served markets. Analysts use it to highlight the size of the market at the ‘bottom of the pyramid’. Academics see it as an essential financial service for sustainable economic growth. All of the definitions are similar to those for conventional insurance, except for the clearly prescribed target market: low-income people.

Broadly speaking, microfinance is a set of practices developed with the objective of increasing the provision of financial services (including loans, savings products, insurance and remittance services) to low income-clients. Typically, these clients come from the poor ‘unbankable or uncreditworthy by commercial banks’ population of the world, to whom traditional sources of