Microfinance serves as an umbrella structure from where different social problems in particular communities have been, if not completely eradicated; enormously improved. Micro-credits are the financial vehicle from where these communities are being beneficiated.

Some potential Micro credit borrowers could be:

• Street vendors
• Trades individuals
• Local services providers
• Low scale agricultures

Because the demand of Micro-credits has increased; some conventional Banks are also contributing with Microfinance, in different ways thinking out of the box and providing micro-loans as part of their product portfolio or serving as point of sales in regions where Banks have branches; in these cases commercial banks generate and book the loans and Microfinance Institutions (MFI’s) act as first front to promote the strategy in local communities.

Due to MFI’s participation; rural communities would be able to administrate their resources and plan consciously the way to be better prepared for future economic crisis. Microfinance Institutions contribute also helping communities to find distribution channels to allocate their products, strengthening like this the development of a sustainable model that will allow borrowers to pay the loan requested.

To summarize Microfinance contributes with Impact Finance providing:

To investors

• Possibility to adopt a social investment strategy geared toward poverty eradication
• An attractive risk-return profile by largely stable financial returns

 

To Microfinance / MFI’s

•  Bank’s Branches network as point of sales
• Funding sources through funds that invest in MFI’s projects

 

To borrowers

• Access to the banking system through micro-loans
• MFI’s serve as a network channel providing a broader scope to reach potential clients

 

 

VCA - MEI3 - LBA April, 2010