Microfinance was introduced in 1970s. Since then, it has become highly relevant to finance professionals, individuals and investors. Microfinance has now widened to alternative Finance, which includes necessary credit, insurance, payment services and savings, as required by micro, medium and small-scale enterprises.
What is seen as microfinance?
Microfinance describes a wide range of financial products that include microloans, micro-insurance and micro savings products that a microfinance institution needs to provide to their clients. It began when social entrepreneurs started lending funds on a huge scale to poor people in the society.
The main objective of microfinance is to alleviate poverty in the society. To accomplish this goal, microfinance banks as well as public sector banks started to evolve. These profit-seeking financial institutions started to achieve higher strength, market reach and sustainability.
They are joined in microfinance units by consumer finance firms that started to emerge as a consumer lender. Most of the MFIs have poverty alleviation as their ultimate goal to sell a greater number of products and services to more consumers.
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What are the different types of microfinance services and products?
The below mentioned services and products are presently offered by MFIs:
Microloans are loans that possess a very small value. These loans are issued to those finance entrepreneurs who are involved in executing micro-enterprises in developing nations. Examples of such micro-enterprises are sewing, basket-making, raising poultry and street vending.
These types of accounts enable people to store tiny amounts of money that they can use in the future without any minimum requirements on balance. Similar to conventional savings accounts as seen in developed countries, micro-savings accounts get tapped for life essentialities such as funerals, old-age supplementary income and wedding.
Individuals who live in developing countries have got more dangers and uncertainties in life. This is seen in the form of direct exposure to disasters, like mudslides, and health-related risks like communicable diseases. Micro-insurance provides better management of risks. Micro-insurance enables insurance policies with smaller policy amounts and premiums.
What is Alternative Finance?
Alternative Finance is seen as an increasing way to combine the best of all technologies with personalized assistance to aid both businesses and individuals. This type of financing refers to a few non-banking financial institutions that fill all those gaps that are left by conventional institutions, that offer greater variety, enhanced flexibility and convenient access. This serves populations who do not have any access to finance like poor people, women, minority groups, and people with no credit history.
Alternative Finance has brought a revolution in the access and distribution of financial services via technology. It offers simple products at fewer prices that appeal to all the different tiers of a pyramid.
Major branches of alternative finance are as follows:
- Payment systems
Both microfinancing and alternate financing have revolutionized the financial industry. Learning about these differences would help you find the best one among them.