To most people in the developed world, banks have become an integral part of our lives. For the most part they have operated silently in background just as we would wish. We take out a mortgage (or two), pay our credit cards and deposit any extra money into a savings account. We don’t really think about it – they have always been there and we assume they will always be there to serve us. This lifestyle is in direct contrast with low-income citizens from small towns in developing countries. To access basic banking needs they must seek out informal moneylenders and collectors. Other products such as loans, grants, and insurance must be found through charities or state-owned companies. Microfinance is attempting to bridge this gap by offering citizens a private alternative to these services.

The four most common uses of microfinance, as cited by Stuart Rutherford in his book The Poor and Their Money, are:

  1. Lifecycle Needs (weddings, childbirth)
  2. Personal emergencies (sickness, injury)
  3. Disasters – (fires, floods)
  4. Investment Opportunities (expanding a business)

These are obviously very important needs for funds and without access to microfinance, these citizens would not be able to afford many of the necessities in life. Experts believe that microfinance provides two main benefits. Not only do low-income families gain access to much needed loans, but more importantly they learn to manage their money through the use of rudimentary savings and checking accounts.

Microfinance obviously provides many benefits to countries – some quantifiable and some not. To learn more about how you can help people around the globe, check the globalEDGE blog on Wednesday to learn more about the microfinance website Kiva!

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