Micro financing is the provision of financial services to poor and low income households who do not have access to formal financial institutions. Microfinance is also simply described also as banking for the poor. Microfinance programmes provide loans, savings and other financial services to low-income and poor people for use in small businesses.
Originally based on traditional forms of community financing, microfinance is found all over the world in such places as Africa, Latin America and Asia. The microfinance movement began in earnest in the early 1980s in places like Bangladesh and Bolivia, and has over the last 20 years, captured the interest of policy makers.
Small businesses often concentrate their borrowing from financial institutions, mostly small banks with which they have long-term relationships, ie relationships that proved mutually beneficial to both parties over time. This relationship enables banks to collect information about the small businesses’ ability to repay such facilities, thereby reducing the risk of providing credit facilities.
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