Micro Finance Banking is extension of standard banking facilities to those doing small scale businesses, those living in poverty and those inhabiting rural areas without demanding collateral.
In finance, collateral placement is a visible barrier inhibiting people from accessing funds from concerned institutions. This hinders the enterprising exploits of those living at poverty levels and small scale business people who in most cases do not have properties that can stand as collateral.
Micro Financing is the only available option for individuals at such level to kick start their business ideas.
It sounds out of place for the average financially educated to extend loans without collateral but for those at the bottom of the pyramid, the poor and semi poor, it is sine qua non. Grading their credit ratings and abilities will never be a herculean task as most of them live in the same community and are totally accessible. Most often, the women who form the fulcrum of the communities are best channels of fund distribution.
These people who obtained such small loans are eager to implement their business ideas and maintain their source of funding as there are lesser options available to them. In most cases, the loans demanded by these people are small in nature, thus they can easily repay its interest payments and that of the capital.
For individuals and institutions offering such services, it will be an added advantage if more education and counseling is offered to their respective clients to improve and fortify their financial knowledge.
Micro credits facilities aimed at empowering the poor especially the women and those domiciled in rural areas is pivotal to creation of small scale industries thereby jump-starting the economy while pulling the machinery of industrialization. When those living at poverty level are empowered, poverty is alleviated if not eradicated.
Those involved in provision of these brand of services do not operate like or compete with conventional banks. This is solely because they are totally at variance in their aim, objectives and modus oparandi.