Does microfinance actually work?

[peter0425]

"Microfinance refers to the financial services provided to low-income individuals or groups who are typically excluded from traditional banking. Most microfinance institutions focus on offering credit in the form of small working capital loans, sometimes called microloans or microcredit."

As someone from a country with quite a lot of poor families, the idea of microfinance is not as uncommon. However I must clarify that microfinance is different from government aid. Hence the question arises of does microfinance actually help the poor? I can say that it can be better than government aid since government aid are just money (and not much money at all) given to families to help them survive the day, the week or the month. But microfinance can help the poor get on their feet and eventually be self-sufficient. But just like with traditional banks, microfinance give out loans with interests. Though probably lower than what traditional banks offer, it can still be risky for the poor to get help through microfinance and set up a business that has no guarantee of being successful.

Still, it is a good start for the poor to at least try and get themselves out of poverty. We know that traditional banks usually only give out loans to those who think they can actually pay back and are very strict with the money they will give. Do you think that microfinance help the poor or are there other ways to get out of poverty?

[uchegod-21]

Without overestimating the usefulness of microfinance, I must say the system brings banking closer to the people, making banking facilities easily accessible to the common people since they are the major target.

A system that offers grants and loans to the common man is a welcome development. Poor people cannot be competing with the rich for these benefits that have been brought to their doorsteps.

In my country, poor people are encouraged through microfinance to save out of their small earnings, and it has helped most common people, especially farmers and petty traders, raise money to buy assets for themselves or even raise capital for their businesses and small ventures.

However, microfinance is still not enough to get a poor man out of poverty.

[Alpha Marine]

On paper, it works, but in reality, it's not too different from conventional banking. They only give out loans to people with good credit or to people who have a means of paying back. On paper, it is made to sound like they give loans to any person who can't afford a conventional bank, but it's not so.
Microfinance gives credit to people who are not rich enough for the big banks, but also not poor. They give to people who have businesses and a way to pay the loans back. They back people with business ideas, and with nothing to show for it. You need to have a steady source of income and good credit.

This doesn't mean I have a thing against microfinance, far from it. On the contrary, I like it. I don't expect them to give loans to every Tom, Dick and Harry that walks into their halls, they're in business to make profit after all.
Every country needs to have a good small business level to be successful, and that is where microfinance comes in. They help small businesses get access to funds they ordinarily wouldn't get from the big banks.
In my country, microfinancing doesn't work, and that is a reason for its struggles.

[buwaytress]

I worked in some very small microfinancing projects, and I have to say, it does work -- depending on what you define "working". Quite proud of it in some cases but even without that experience, do you guys really know what you're talking about?

I won't pretend to know what 2025 looks like in terms of microfinance but 15 years ago, we were talking about $50 loans here -- say, for a small gardening project, it's seeds, fertiliser, tools, pesticide for a harvest cycle. Or $15 for a guy to buy a bicycle and stand to fry fritters on a street. And they're only paying those back in years, giving them some kind of revenue-generating opportunity to pay the loan back and grow. Microfinance schemes I worked with were very small and actually keep giving better loans (bigger amounts and better interest) with repayment, so many people can grow whatever business it is they're doing.

These schemes generally come with free training, and provide free or assisted aspects. Suppliers, downstream access, even licences etc.

Making burgers? we'll find the buyers. The suppliers. There's a 30-year old scheme with a street burger chain in my country, they loan you the stand, umbrella, cooking stove, supply all the patties and buns, you just cook and sell. They provide training in cooking, hygiene, recipes etc. That's just one example I know about.

Also, one misconception about microcredit is their interest. They actually usually are higher than what regular banks charge but are lower than say, moneylenders and Uncle Baba who'll break your legs if you can't pay double in a week. That $15 loan? You're usually expected to pay maybe even $20 back (33% interest), but over a year, it's manageable once the revenue starts coming. Why do you think MFIs are booming in the developing world?

[avikz]

Microfinance is not a super traditional business. Even though there are many instances of successful micro finance company. But it requires a very different approach than a traditional Bank. Microfinance companies not only give out loan at a lower interest rate, but it also helps the poor people to market their product to the right group of buyers. So it's an ecosystem they create.

These kind of small loans really help poor people in a great way. If you are really interested to know more, learn about Bandhan Bank from India. They have now become a billion dollar enterprise, but they had started as a Micro finance company and helped millions of lives along the way.

[BIT-BENDER]

Know this and you will have peace of mind, no banking institution regardless of the niche they are under is going to help you, in fact throw away what you were taught in school concerning how the bank helps people. The reality is that the banking was never meant to help the masses rather it is the other way round.
If there is any group of people that the bank help is the wealthy because the can easily take loan from the bank fund their lifestyle and avoid taxes that would have come to them.

[Spaceman1000$]

"Microfinance refers to the financial services provided to low-income individuals or groups who are typically excluded from traditional banking. Most microfinance institutions focus on offering credit in the form of small working capital loans, sometimes called microloans or microcredit."

As someone from a country with quite a lot of poor families, the idea of microfinance is not as uncommon. However I must clarify that microfinance is different from government aid. Hence the question arises of does microfinance actually help the poor? I can say that it can be better than government aid since government aid are just money (and not much money at all) given to families to help them survive the day, the week or the month. But microfinance can help the poor get on their feet and eventually be self-sufficient. But just like with traditional banks, microfinance give out loans with interests. Though probably lower than what traditional banks offer, it can still be risky for the poor to get help through microfinance and set up a business that has no guarantee of being successful.

Still, it is a good start for the poor to at least try and get themselves out of poverty. We know that traditional banks usually only give out loans to those who think they can actually pay back and are very strict with the money they will give. Do you think that microfinance help the poor or are there other ways to get out of poverty?

I think the microfinance system is the one that works with rural and semi urban areas, it tries to bring the idea of giving them soft loans and other financial services for people within the rural and semi urban areas especially farmers, Petty traders and coorporate organizations within the locality, since they don't have the availability of commercial banks and probably the Central Bank within them.

 So the idea of microfinancing is to bring relief to the rural communities by giving them different services or financial assistance that they are to pay back gradually. The problem most microfinance face in developing countries its system failure, while giving out loans, most of the microfinance don't have high interest rate but yet you will see most of those people that have collected loan defaulting to pay their loans or service the interest thereby dwafting the effort of the microfinance in making revenue to keep their services running.

[Findingnemo]

As someone from a country where Microfinance at peak here and I would say it's a double edged sword more like a credit card but made available to everyone. It boosts consumerism so definitely a big jump in the sales of products but people may lack the concept of savings if they get addicted to this small finance that enables them to buy anything with almost no initial payment. I am against it just to make the people to follow the delayed gratification so they will practice healthy finance not the other way round.

[Fortify]

"Microfinance refers to the financial services provided to low-income individuals or groups who are typically excluded from traditional banking. Most microfinance institutions focus on offering credit in the form of small working capital loans, sometimes called microloans or microcredit."

As someone from a country with quite a lot of poor families, the idea of microfinance is not as uncommon. However I must clarify that microfinance is different from government aid. Hence the question arises of does microfinance actually help the poor? I can say that it can be better than government aid since government aid are just money (and not much money at all) given to families to help them survive the day, the week or the month. But microfinance can help the poor get on their feet and eventually be self-sufficient. But just like with traditional banks, microfinance give out loans with interests. Though probably lower than what traditional banks offer, it can still be risky for the poor to get help through microfinance and set up a business that has no guarantee of being successful.

Still, it is a good start for the poor to at least try and get themselves out of poverty. We know that traditional banks usually only give out loans to those who think they can actually pay back and are very strict with the money they will give. Do you think that microfinance help the poor or are there other ways to get out of poverty?

I'd say that yes, Microfinance - like many financial initiatives - can work very well in helping people get out of poverty, but it has to be administered correctly and should never be considered a free hand out. The problem that many people with no money face is having a great idea and ability to work it, but the barrier to entry being needing a sum of upfront capital. Take land for example, someone might rent a tenth of an acre of 25 dollars a month and make 50 dollars a month worth of crops from it, but without stability of a grant or loan they might not have anyone else who will trust them with such a venture without charging them a high rate that wipes out the incentive. A government or charity funded grant would not be seeking to make a heavy profit, but rather give people in the country more self sufficiency and help the local economy, while also reducing the unemployment rate.

[franky1]

micro financing is the bull$h!t industry that lets people put their uber-eats meal deliveries, groceries and clothing on finance,
a big player in my area is klarna that allow people to buy now pay later where the late payment fees are worse than loan sharks

[Die_empty]

Still, it is a good start for the poor to at least try and get themselves out of poverty. We know that traditional banks usually only give out loans to those who think they can actually pay back and are very strict with the money they will give.

Do you think that microfinance help the poor or are there other ways to get out of poverty?

Loans or credit facilities should only be given to people who will pay back. If you don't have a viable business that needs capital to start or expand, you don't have any business with microfinance institutions. If your intention is to collect loans or credits and use them on your needs, don't ever collect loans.

Some people, mainly in developing nations, usually take loans or grants from government institutions with the aim of not paying them back. Due to corruption and poor management, these government financial agencies that were established to grant financial assistance to qualified people will be used for political patronage or settlement. Because these beneficiaries don't have any business plan, they will end up wasting the money thereby destroying such noble initiative.

Microfinancing can help create millionaires among the poor if they are well managed and the right people are granted access to funds.

[Alphakilo]

Do you think that microfinance help the poor or are there other ways to get out of poverty?

In rural communities, microfinance banks are the star banks.

Farmers, fishermen and market women and other small scale business owners all benefit from microfinance banks. They know the people in the community where they are located. They help them to support their business.

The locals know this and are dependent on them when their businesses need support. Microfinance banks remain an integral part of their community.

[Z_MBFM]

Micro finance is definitely very important but it is even more important for those who are financially weak. No amount of money should ever be neglected. It is possible to become very rich by saving small amounts of money but if we neglect micro finance then our financial growth cannot be very fast. Learning money management is very important to reduce the misuse of money by a person. And finally micro finance can play a very big role. So I think micro finance is definitely very effective for a person's financial growth. And I always like micro finance a lot.

[blockman]

Still, it is a good start for the poor to at least try and get themselves out of poverty. We know that traditional banks usually only give out loans to those who think they can actually pay back and are very strict with the money they will give. Do you think that microfinance help the poor or are there other ways to get out of poverty?

Yes! Especially in our country that has a lot of farmers that aren't given the attention by the national government and that's why they're likely on their own. Doing all of these finances of fertilizers, water pumps and other important factors that they need to sustain the food security of our country. They're using these microfinances and microbanks for them to help the production of rice and other crops that are vital to our country which are considered staple food. And it's not just all about being poor but having to see such service that are helping them to provide what are not being given to them. The huge banks are strict and they're mostly targeting the big enterprises and corporations. And that's why microfinance helps these sectors that lack of support from the bigger agencies.

[Coyster]

Any scheme or service that supports low-income individuals definitely works. The loan is a microloan and so it is not a big loan, but if the individuals who receive it put it to good use, then they could grow the capital and have enough to repay the loan and interest, and also to sustain whatever business they started with the loan.

That said, you'd not expect to get rich quick through microloans, but it is a good start for a smart person to grow something they have interest in, so guess we can say it works.

[peter0425]

In my country, poor people are encouraged through microfinance to save out of their small earnings, and it has helped most common people, especially farmers and petty traders, raise money to buy assets for themselves or even raise capital for their businesses and small ventures.

It is good news that it has helped a lot of people. I must say I did realize that it also really depends on the country. If a country has very high corruption rate, projects such as microfinance can't be operating to its maximum efficiency. Therefore will not be helping people the way the project intends to do. But if it does work out perfectly for other countries then we must learn a lot.

However, microfinance is still not enough to get a poor man out of poverty.

Unfortunately. Even with government help, it is not really still that easy. It can be easier with help sure but there is still always a long way ahead for someone to get out of poverty. We should not completely depend on the government alone.

[slapper]

Depends on what you define as "help." Microfinance is risk transfer not charity. You hand someone debt, not a safety net, and call it empowerment. Sometimes it sparks real change (microbusinesses, community growth) but sometimes it’s a treadmill: microloans feed micro-debts. Though most wealth was created on group investments, we enjoy the narrative of self-reliance. Microfinance seems contemporary, yet it usually only serves to reinterpret the old concept of "lift yourself up." Maybe mix microcredit with systematic investments if we wish for actual change. Otherwise, it is simply poverty followed with paperwork

[lionheart78]

Do you think that microfinance help the poor or are there other ways to get out of poverty?

I believe microfinance help the poor in improving their way of living.  With the help of microfinance, people who have ideas but not enough money is able to realized their idea which can improve their way of living.  I have seen several people who used to be very poor to the point of missing their monthly rental but are able to establish a good source of income that can support their needs and enable them to save money for further investment.  Although microfinance charges interest, it is not that big and does not require any collateral from the borrower.

There are other ways to get out of poverty but I believe Microfinance can kickstart any kind of plans to get out of poverty.

[Sticky Bomb]

Most government loans and grants are distributed through microfiber banks since they're banks kept for direct assistance to the people. It's a bank for the grassroot and you don't expect a very heavy amount from them unless directed by the government.

Microfinance banks works well since they empower people directly, in my country there's a microfinance bank that gives out terminals to people for POS services and collect their charge via commissions from transactions carried out by the vendors. There are microfinance banks that gives agricultural loans to farmers to help them get better tools for their work.

[justinlamode]

Microfinance is transforming the banking sector in my country as the offer outstanding services to people who were more or less subjected to untold suffering by the big banks. Through the microfinance banking initiatives, so many small businesses have been rejuvenated consequently,  many jobs have been added to the labor market. Therefore, microfinance does work in my country and it is one of the best initiate of the government to support small and medium scale businesses.