Finance is typically used in traditional banking and it’s a field that deals with the allocation of assets and liabilities over time under conditions of certainty and uncertainty. Finance can be defined as the science of cash management or, in other words, finance is simply the management of money by governments, large organizations, etc., or money provided by a bank or other institution which can be used for personal use.
Whereas Microfinance is a source of financial assistance for small businesses lacking access to traditional banking services like loans. There are two main mechanisms for the delivery of financial services to such clients. First is relationship-based banking for individual small business owners. Second one is group-based models where several business owners, mostly women, come together to raise money for their joint ventures.
Some of the major difference between Traditional Financing and Microfinancing are as follows:
- Traditional Financing is Collateralized and people need to keep properties like land, building, gold, etc for taking debt or loan.
- Traditional Financing is single or unit based financing.
- Traditional Financing can place from small to huge amount.
- Traditional Financing contains generally cheap interest rate.
- Traditional Financing is done for the personal or business motive.
- Micro Financing is Non Collateralized as there is no need of collateral for taking small debts or loans for the poor.
- Micro Financing is group based financing.
- Micro Financing is always of small amount.
- Micro Financing contains relatively high interest rate.
- Micro Financing is generally done for the upliftment of livelihood of poor ones.