Policy Note- January 2013 – The role of microfinance in supporting small businesses
Definition of microfinance
Microfinance can be defined as “banking the unbankable”. It refers to bringing financial services such as credit, savings and loans to the poor who are often not served by the formal banking system due to their inability to provide collateral or some form of security and therefore are seen as being a higher risk group for banks.
Microcredit is one aspect of microfinance which provides credit to the unemployed, entrepreneurs, or small farmers who are not “bankable” because they may not have any collateral, are not in steady or permanent employment, do not have a regular income and a verifiable credit history, and thus do not meet the minimum requirements of the formal banking system.