Microfinance - The MIX Market - Overview

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Ten frequently asked questions about Microfinance

	1.What is microfinance? To most, microfinance means providing very poor families with very small loans (microcredit) to help them engage in productive activities or grow their tiny businesses. Over time, microfinance has come to include a broader range of services (credit, savings, insurance, etc.) as we have come to realize that the poor and the very poor who lack access to traditional formal financial institutions require a variety of financial products.
	2. Who are the clients of microfinance? The typical microfinance clients are low-income persons that do not have access to formal financial institutions. Microfinance clients are typically self-employed, often household-based entrepreneurs.
	3. How does microfinance help the poor? Experience shows that microfinance can help the poor to increase income, build viable businesses, and reduce their vulnerability to external shocks. It can also be a powerful instrument for self-empowerment by enabling the poor, especially women, to become economic agents of change.
	4. When is microfinance NOT an appropriate tool? Microfinance increasingly refers to a host of financial services – savings, loans, insurance, remittances from abroad, and other products. It's hard to imagine that there would be any family in the world today for which some type of formal financial service couldn't be designed and made useful.
	5. Why do MFIs charge such high interest rates to poor people? Providing financial services to poor people is pretty expensive, especially in relation to the size of the transactions involved. This is one of the most important reasons why banks don't make small loans.
	6. Aren't the poor too poor to save? The poor already save in ways that we may not consider as "normal" savings--- investing in assets, for example, that can be easily exchanged to cash in the future (gold jewelry, domestic animals, building materials, etc.). After all, they face the same series of sudden demands for cash we all face illness, school fees, need to expand the dwelling, and burial.
	7. What is a Microfinance Institution (MFI)? Quite simply, a microfinance institution is an organization that offers financial services to the very poor. Most MFIs are non-governmental organizations committed to assisting some sector of the low income population.
	8. Can microfinance be profitable? Yes it can. Data from the MicroBanking Bulletin reports that 63 of the world's top MFIs had an average rate of return of about 2.5% of total assets, after adjusting for inflation and after taking out subsidies programs might have received.
	9. What is the government´s role in supporting microfinance? Governments have a complicated role when it comes to microfinance. Until recently, governments generally felt that it was their responsibility to generate ‘development finance', including credit programs for the disadvantaged.
	10. What is the role of the financial regulator in supporting the development of microfinance? Many feel that the most important role of a financial regulator in supporting the development of microfinance is to create an alternative institutional type that allows sound financial NGOs, credit unions, and other community-based intermediaries to obtain a license to offer deposit services to the general public and obtain funds through apex organizations. In a few countries, this may be an appropriate strategy.