Microfinance Institutions (MFIs) provide specially formulated financial services (savings, insurance and loans) that are designed to meet the needs of low-income households that are outside of traditional financial systems due to poverty, bad or no credit and no collatoral. MFI's (Microfinance Institutions) providing these services may include NGOs (Non Governmental Organizations), local cooperatives and rural banks.
It works like this: The MFI targets a specific group of low-income people, and provides micro-credit loans at low, affordable rates that are usually heavily subsidized by the institution). The loans can be used by the individual for business purposes, with the goal of improving the quality of life for them and their families. MFIs often provide a targeted group of poor people a small amount of credit at low, affordable interest rates (often substantially subsidized by the institution) that can then be used by the individual to engage in some productive activity with the longterm goal of improving the quality of their lives and the lives of their families lives. In some cases the loan can be used to meet immediate or emergency needs such as for food or medicine.
The success or failure of these microfinance programs are often determined by the amount of social capital, rural populations, dependence on a single economic activity (such as farming with a single crop), the use of barter instead of cash, and the occurance of future crises, such as civil violence, or hyperinflation.
