What is Microfinance? What is Village Banking?

FINCA Client Africa

What is Microfinance?

Microfinance refers to financial services provided to low-income people, usually to help support self-employment. Examples of microfinance products include: small loans, savings plans, insurance, payment tranfers, and other services that are provided in small increments that low-income individuals can afford. These services help families to start and build "micro" enterprises, the very small businesses that are important sources of employment, income, and economic vitality in developing countries worldwide.

Because salaried or wage-paying jobs are scarce in many developing countries, most citizens earn their livings through self-employment, creating and operating their own tiny enterprises. But without financial services to fuel their productivity, the poor can never grow their microenterprises into businesses that help them escape poverty. The microfinance movement was born to ease the suffering caused by poverty, and to awaken the global economy's sleeping giant: the under-capitalized productivity of the world's working poor.

"Microfinance is an idea whose time has come.”
—Kofi Annan, former United Nations Secretary-General

What is Village Banking?

By providing very poor families with small loans to invest in their microenterprises, Village Banking empowers them to create their own jobs, raise their incomes, build assets, and increase their families’ well-being. Here's how it works. Neighbors come together in financial support groups called “Village Banks.” Individuals borrow working capital for their microenterprises, and because they have little to offer for collateral, the group guarantees those loans. As businesses grow, families earn more, purchase more nutritious foods, and parents are better able to send their children to school. After a year or more, many Village Bankers make significant improvements to their businesses, their homes, and their lives. Because neighbors support each other while growing their businesses, Village Banking helps invigorate entire communities.

Village Banking is designed to reach the poorest of the working poor. FINCA clients—70 percent of whom are women—have no other sources of working capital. FINCA works closely with its clients to help them build their businesses so they can earn more, become part of the larger marketplace, and enter the global economy. In addition to working capital, we provide them with insurance, savings plans, and other services to help them weather crises such as illness or death in the family, or natural disasters.

See why Village Banking is a key strategy for achieving the Millennium Development Goals, eight important goals agreed upon in 2000 by 147 nations in order to put an end to severe poverty by 2015.

See our Flash video about the power of Village Banking.

Watch Village Banking in action in a short video, "A Donor's Perspective".

Click here to learn about FINCA's Village Banking Campaign.