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. Many women and girls have trouble accessing formal financial institutions as they don't have appropriate identification or certification of land and house ownership.
2. BETTER LOAN REPAYMENT RATES
Microfinance tends to target women borrowers, who are statistically less likely to default on their loans than men. These loans help empower women, and they are often safer investments for those loaning the funds.
3. EXTENDING EDUCATION AND HEALTH
Families receiving microfinancing are less likely to pull their children out of school for economic reasons and more likely to have resources to pay for school fees or health services.
Even a small working capital loan of $100 can be enough to launch a small business in a developing country that could help the individuals pull themselves and their family out of poverty. These small businesses can help create new employment opportunities, which has a beneficial impact on the local economy.
5. IMPROVED INCOME AND NUTRITION
Through small loans women are able to get needed agriculture inputs such as improved seeds and fertilizers to increase productivity and nutritional content of crops and generate more income from the market.
The Important Features of Microfinance are
- Microfinance is a tool for the empowerment of poor women;
- Loans under microfinance programmes are very small;
- Microfinance targets the poor rural and urban households;
- Credit under microfinance follows thrift i.e. mobilize savings and lend the same;
- Low transaction cost due to group lendings;
- Transparencies in operation;
- Short repayment period;
- Simple procedure for reviewing, processing and approving loan applications and delivery credit;
- Chances of misutilization are rare and there is assured repayment;
- Peer pressure act as the collateral security required for loans;
- Need based loan disbursement