What are the key principles of microfinance?

The key principles of microfinance are as follows:

1. Financial Inclusion: Microfinance aims to provide access to financial services to individuals who are traditionally excluded from the formal banking sector. It focuses on serving low-income individuals, especially those in rural areas or marginalized communities.

2. Small Loans: Microfinance institutions (MFIs) provide small loans to borrowers who lack collateral or a credit history. These loans are typically used for income-generating activities, such as starting or expanding a small business.

3. Group Lending: MFIs often employ a group lending model, where borrowers are organized into small groups. These groups act as a support system, providing social collateral and peer pressure to ensure loan repayment. This approach helps mitigate the lack of traditional collateral and encourages responsible borrowing.

4. Savings Mobilization: Microfinance also emphasizes the importance of savings. MFIs encourage clients to save regularly, helping them build financial resilience and meet future needs. Savings mobilization also provides a stable source of funds for the MFI to lend to other clients.

5. Client-Centric Approach: Microfinance institutions prioritize understanding the needs and preferences of their clients. They design products and services that are tailored to the specific requirements of low-income individuals, ensuring affordability, flexibility, and convenience.

6. Social Impact: Microfinance aims to alleviate poverty and promote social development. It goes beyond financial services by providing financial literacy training, entrepreneurship development, and other non-financial services to empower clients and improve their overall well-being.

7. Sustainability: Microfinance institutions strive for financial sustainability to ensure their long-term viability. They aim to cover their operational costs through interest income and fees, while also balancing the social mission of serving the poor.

These principles collectively contribute to the overarching goal of microfinance, which is to enable low-income individuals to access financial services, build assets, generate income, and ultimately improve their living standards.