In a world where our choices — seemingly big or miniscule — can shape the course of society, many of us are seeking ways to align our actions with our values. From our morning lattes to the clothes we wear, there's a growing awareness that every purchase we make has a wider impact.
What if we could extend this consciousness to our financial decisions? That's where micro finance comes into play. It's not just about investing money — it's about investing in a better world for all.
If you’re unsure about entering this realm of ethical investing, this guide to micro-financing offers everything you need to know about the what, the how and the who. Read on to learn more as we explain microfinancing for beginners.
What Is Microfinancing?
Microfinancing is all about providing small-scale loans and other vital financial services to people and communities who may not have access to traditional banking or lending services. This often includes people from low-income backgrounds and global communities that may be experiencing some kind of economic unrest. By providing microfinance loans, international citizens can effectively respark local economies across the world by directly investing in the small businesses and entrepreneurs who hold their communities up. Offering entrepreneurs the chance to elevate their enterprises and make meaningful impacts on their countries’ economic development effectively takes a bottom-up approach to solving some of our globalised world’s most challenging puzzles surrounding poverty and equality.
Who Does It Help?
Micro-finance is designed to support people who, due to poverty, lack of collateral, or living in a remote area, cannot take full advantage of traditional banking services. A few examples are small-scale entrepreneurs who need funding to start a new business or expand one that is just getting off the ground, or artisans who lack the capital to purchase raw materials for their craft.
Micro-financing also prioritises disadvantaged groups such as women who face additional roadblocks due to gender discrimination and often lack access to traditional banking services. Access to microfinance helps women achieve financial independence and realise their dream of owning a business, which in turn helps them provide for their families and support their community.
Lastly, micro-financing reaches people in developing countries and other regions who remain out of the reach of traditional or secure financial institutions. It may be rural residents, refugees, indigenous peoples, or communities who have been hit hard by natural disasters or conflict. By providing these populations with the tailor-made financial services they need, microfinance helps them build resilience, create sustainable livelihoods, and break the poverty cycle.
The Different Kinds Of Microfinancing
Microfinance institutions offer a range of products and services tailored to the needs of their clients. We’ll outline a few below.
Microloans
These are small loans provided to entrepreneurs and small business owners to start up new businesses or expand existing ones. When a business is on its feet, the loan is returned, as with any regular loaning format.
Microsavings
Microsavings are deposit services designed for individuals who want to save small amounts of money regularly — similar to the savings accounts that most of us have, but for those who may be on a lower income, or are not able to save a large percentage of their earnings.
Microinsurance
Microinsurance services protect low-income borrowers against risks such as illness, crop failure, or natural disasters, with more accessible plans tailored to their needs.
Financial education
Training programs and classes that are aimed at building financial literacy and business management skills in communities who may find it harder to access these educational resources are part of a holistic approach to microfinance.
Who Provides Microfinancing Services?
So, if traditional banks aren't helping out, who does? Well, there are a few individuals and companies who swoop in to open up opportunities. These include non-profit organisations, credit and savings co-operatives, and other regulated financial institutions. In 2022, microfinance loans grew by 10%, so microfinancing services are clearly a new investment model that looks set to grow.
These organisations work together to support an enabling environment that gives everyone a chance to achieve financial success. This means equitable access and opportunity, regardless of where someone was born, or what background they come from. Because no one should be left behind due to circumstances beyond their control.
How Can I Get Involved?
Now that you know all about microfinancing and who’s making it happen, you might be wondering, “how can I get in on this?”.
As it turns out, it’s much easier than you might think. Here are some of the best ways to get involved.
Research microfinance organisations
Look up microfinance institutions, NGOs, or cooperatives in your area. Look into what they do, who they help, and how you can contribute.
Make a loan
Platforms like ‘Lend with CARE’ allow you to lend money directly to entrepreneurs and small businesses worldwide. Browse through their projects and find the ones that resonate with you before making a loan to their cause.
Spread the word
Spread awareness on the topic of microfinance with your family, friends, and social networks. The more people that know about it, the easier it will be to support these organisations, as more individuals get involved.
Volunteer
Lots of microfinance institutions are reliant on volunteers. Whether concerning fundraising, marketing, or administrative work, your time and effort will be highly appreciated even if you aren’t able to directly contribute to micro-financing loans.
Donate
If you don’t feel ready to make a loan of your own, or to volunteer your time, consider making a donation to an NGO or other non-profit. Each small contribution makes a huge difference and can help the runnings of these companies, meaning they in turn are able to assist more families and entrepreneurs.
By getting involved in this new global enterprise, you can become a part of the more extensive movement to empower people, entrepreneurs, and communities around the world. It’s a seemingly small step that can make a massive impact on thousands of lives, enabling you to put your money where your ethics are.
In A Nutshell
When it comes to economic opportunities, the world is far from a level playing field. And for those who otherwise may be left behind or and excluded by traditional banking, micro-financing is one step in the right direction.
So to wrap up, if you've ever felt compelled to make a difference but didn't know where to start, consider putting your money where your morals are and exploring the world of micro-financing. Who knows? Your small investment could be the catalyst for a big, positive change.
