What services do microfinance institutions offer?
In many countries, only a fraction of the population even has a bank account. Most people have no suitable option for saving money. Larger sums of money can often not be kept at home, since protection from thieves is lacking. People therefore often save in the form of material assets, e.g. they buy livestock. The advantages of money – versatile usability and divisibility – are thereby lost. A bank account allows people to save money in a secure and suitable form. Microfinance institutions are often the only possibility for people with low income to open such an account.
e.g. Small loans
Often, small loans are necessary to allow people to become self-employed or to significantly improve their income situation. A loan in the amount of $50-500 can open up completely new perspectives for an individual. However, traditional banks do not grant such small loans. The administrative costs would be too high and the profit too low. Microfinance institutions have developed instruments that allow such small loans to be granted. In general, the repayment rate is astonishingly high, since the offerings of microfinance institutions are often the only option for these individuals to receive a loan,
and they will do everything they can to make use of this opportunity.
To avoid carrying cash for the purchase of goods or for relatives, the customers of many microfinance institutions are able to conduct transfers. This obviates the need to travel long distances to hand over money and the risk associated with cash payments.
Some microfinance institutions also offer a form of insurance – so-called “micro insurances”. Even one’s own account may be considered a certain insurance. Minor setbacks and short-term financial needs of a limited extent can be absorbed by one’s own savings. But the dangers for people in developing countries and threshold countries are significantly higher than they are for us: The poor living conditions make disease more probable. People are often malnourished, the quality of water is poor, and the possibilities for an adequate level of hygiene do not exist. The risk of accidents is relatively high, since safety regulations are often ignored or cannot be complied with. Finally, the possibility of being affected by a natural disaster is also significantly higher than for us. People living below or barely above the poverty line are exposed to dangers against which a micro insurance can offer a certain level of protection.
Category: Payday loans