Why Microfinance Matters Especially for Countries in Development

By Hazel Antiporta

Microfinance, which involves providing small loans, savings, and other financial services to individuals and businesses who do not have access to traditional banking services, remains a vital service in developing countries where poverty is widespread, and access to financial services is limited.  

One of the main reasons microfinance is so important is that it provides individuals and businesses with access to the capital they otherwise wouldn’t have. This can be particularly crucial for small farmers and entrepreneurs, who often have difficulty getting the financing they need to start or grow their businesses. With a small loan from a microfinance institution, a farmer can buy the seeds, fertilizer, or equipment they need to increase their production and income, which can help lift them out of poverty and improve their standard of living. 

Another reason microfinance is important is that it gives people a way to save money and plan for the future. In many developing countries, few formal financial institutions, such as banks, offer savings accounts or other financial products. As a result, people often rely on informal savings mechanisms, such as keeping money at home or investing in risky ventures, which can be insecure and unreliable. Microfinance institutions, on the other hand, provide safe and secure savings products, allowing people to save money and plan for the future with confidence. 

In addition to providing access to capital and savings opportunities, microfinance can also help promote financial inclusion. In many developing countries, large portions of the population are unbanked, meaning they don’t have access to formal financial services. This can be a barrier to economic growth and development, preventing people from fully participating in the economy. Microfinance institutions, by offering financial services to unbanked individuals and businesses, can help bridge this gap and promote financial inclusion. 

Furthermore, microfinance can also help promote gender equality. In many developing countries, women are disproportionately affected by poverty and financial exclusion. They are often excluded from the formal financial sector and have limited access to capital and other financial services.