Introduction to Microfinance

Abstract

The inequality of wealth distribution across the globe is no secret. One out of every three people in the world live on less than $3.10 per day. Nearly one in 10 lives in extreme poverty, which according to the World Bank is an income of less than $1.90 per day. The global distribution of poverty is uneven as well, with more than 75% of those living in extreme poverty living in South Asia or Sub-Saharan Africa. This sobering fact has driven various organizations such as the United Nations, World Bank, and many non-governmental organizations, or NGOs, to initiate programs targeted at reducing poverty. Microfinance is just one of many innovative tools in the global effort to shrink the wealth gap.Poverty continues to affect billions of lives across the globe. Microfinance is but one tool of many that strives to alleviate poverty. Specifically, microfinance serves the demand the poor have for financial services. The poor have been traditionally excluded from formal financial services, but through innovative financial products, such as group lending, microfinance institutions have been able to address the challenges in lending to the poor while delivering products—microcredit, microsavings, insurance, and more—that can help clients lift themselves and their families out of poverty.With the help of network organizations, microfinance investment vehicles, donors, and technical support providers, microfinance institutions attempt to reach the underserved and to include them as fully as possible in financial systems around the world. This effort has grown from a handful of organizations serving a few clients to many thousands of microfinance institutions reaching hundreds of millions of low-income people across the globe.The following chapters will take a closer look at poverty, microfinance, the industry, the impact of microfinance on the poor, and the key players that make microfinance possible.