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Microfinance
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Financial services for microentrepreneurs
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More than 500 million people in developing countries are microentrepreneurs. These people are barred access to conventional financial services and cannot take out normal loans because they are unable to provide the requested collateral. Microfinance institutions provide specific types of credit scheme that enable them to boost their income and become independent.
Key to self-reliance
For millions of small and microentrepreneurs in developing countries and emerging markets, a microcredit can be the decisive step to a better future. Microentrepreneurs work alone or employ a small number of people. Many are women, earning their living as vegetable growers, seamstresses, street cooks or hairdressers – to name just a few. More than 90 percent of all microentrepreneurs are barred access to financial services because they cannot provide the collateral required by banks. For these entrepreneurs, microcredits and other financial services can often be a great opportunity, enabling them to expand their business and improve their standard of living.
Prospects for microentrepreneurs
Microfinance helps people become self-reliant. In reality it is a form of retail banking that enables poor but economically active people in developing countries to boost their earnings and put aside savings. The result is higher income, greater insurance against risks, improved social status,
especially for women, and better health and nutrition. This way, microfinance can make an important contribution to alleviating poverty in developing and emerging countries.
Microfinance comprises a range of financial services adapted to meet the needs and local circumstances of microentrepreneurs. Major services include commercial loans (microcredit), savings and other financial services, such as payment transactions, insurance and provisions for the future.
The concept of microfinance institutions (MFIs)
Microfinance institutions (MFIs) provide credit schemes specifically geared to microentrepreneurs. Often they offer additional financial services as well. MFIs operate locally and are staffed with local people who evaluate and support the MFI’s customers and build close relationships of trust with local microentrepreneurs. This is one of the reasons why microentrepreneurs are such reliable customers. Experience shows that up to 97 percent of borrowers repay their installments on time. Customers often take up a second microcredit to further develop their business.
The microfinance business model
The success of microfinance depends on the business model adopted by microfinance institutions (MFIs) because it assures the microentrepreneurs’ reliability when it comes to repaying their loan on time. This means that many MFIs are able to operate profitably, expand their business, and offer additional services. To grow and meet increasing demand, however, they need financing. Our social investment products are a way of investing in this development.
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Flow of capital of responsAbility’s microfinance funds
Your investment in responsAbility’s microfinance funds will flow into developing countries and emerging markets in the form of debt securities and, to a minor extent, equity interests in microfinance institutions. The microfinance institutions we have carefully selected then provide microfinance services to microentrepreneurs to enable these to pursue economic activities.
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