What is mictrofinance?

I have been sick last few days. I have not had chance to enjoy the free four days. Folks here are planning some new year bash. I can't be part of that either. Not the best four days i would have had liked them to be.

However, For few months, i have been reading up on Microfinance and meeting folks in mfi industry. It's something of alternate studies that i'm getting to do at IIMA. One of the things i love doing at IIMA. Ofcourse, studies at IIMA is also valuable learning experience and has been greatest of value adds to me.

So here is the snippet of mfi (from my report on risks in MFI) the way i see...

So what is microfinance?

Microfinance is a buzzword nowadays. With Mohd. Unis receiving noble prize, everyone is keen to know what is happening in the microfinance world. Everyone wants to know what is so revolutionary about microfinance that a relatively unknown person can be rewarded noble prize. Everyone wants to know if microfinance can become catalyst to poverty eradication.

Anyone can guess from the word what micro finance can be. When financial transactions are performed in small (micro) amount, the activity is called microfinance. Though microfinance is synonymous with lending activity, microfinance also covers savings and insurance.

Micro itself is a relative word to the countries and geographies. In USA, micro activity could be upto $1000 or a bit more, but in India, the activity of size more than $100 (~ Rs. 4500) can also be considered above the limit of micro. Though stress in microfinance is on smaller amount transaction spreading across larger population.

So in short, microfinance is small amount lending, savings and insurance and other such financial activities for larger masses. Also for India a point to note is that the microfinance activities are mainly active in the villages, the urban areas have not seen much of the action.