A microfinance loan is a loan extended by non-traditional lenders to people who are not served by traditional banks, such as lower-income borrowers, people without collateral, or people with lower credit scores. It does not necessarily refer to the loan amount, although most loans are small – from the $500 range to thousands.
Microfinance loans may also be called microcredit. The broad term microfinance implies other services such as specialized savings accounts, insurance or other financial services for the same underserved market.
- Who Uses Microfinance Loans? – Usually small business owners or entrepreneurs, or those wanting to become one. They cannot acquire bank financing because of the risks associated with their ventures, the smaller size of the loan required, their limited experience, or the variability of their income. Many are self-employed.