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, particularly those in low-income or underserved communities.

2. Small Loans: Microfinance institutions offer small loans to borrowers who lack collateral or a credit history. These loans are typically used for income-generating activities or to meet basic needs.

3. Group Lending: Microfinance often utilizes a group lending model, where borrowers form small groups and are jointly responsible for each other's loans. This approach promotes social cohesion and peer support, reducing the risk of default.

4. Savings Mobilization: Microfinance encourages individuals to save money regularly, promoting financial resilience and enabling them to build assets over time. Savings services are often provided alongside credit facilities.

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 and communities.

6. Social Impact: Microfinance aims to alleviate poverty and empower individuals by providing them with the means to improve their livelihoods. It seeks to create positive social and economic change at the individual, household, and community levels.

7. Sustainability: Microfinance institutions strive to achieve financial sustainability by balancing their social mission with the need to cover costs and generate income. They aim to operate as self-sufficient entities that can continue serving their clients in the long term.

These principles guide the operations and objectives of microfinance institutions, enabling them to effectively address the financial needs of the underserved population.