Microfinance Business Model

"Microfinance" is often defined as financial services to poor clients and low income. In practice, the term is often used more to refer to loans and other services providers who are identified as "microfinance institutions" (MI). These institutions generally tend to use new business models developed over the last 30 years to provide small loans to pay borrowers with little or no security. These methods include responsibility and group lending, a former savings requirements for the loan, the loan is becoming increasingly slowly, and an implicit guarantee of access to future loans if the loans are repaid in full and quickly.
Home MFI

MFI occurred when lack of access to credit for the poor is due to practical difficulties that the difference between the economic and operational characteristics, followed by financial institutions and financing needs of low-income households. For example, trade credit requires borrowers to have a stable source of income, which can be paid principal and interest in accordance with the agreed terms. But the incomes of many households are not stable, independent, independent of size. A large number of small loans needed to serve the poor, but lenders prefer to deal with large loans in small amounts to minimize administrative costs. Also seeking guarantees a clear title, which has many low income families. Besides banks tend to show low income introduction of a risk information is wrong track operating costs extremely high.

Microcredit is a part of microfinance, is an extension of very small loans (microloans) to those living in poverty designed to spur entrepreneurship. These people are not real, stable employment and a verifiable credit history and therefore can not meet the minimum requirements for access to traditional credit.
The business model for the economic viability

During the last decade, however, the successful experience in providing financing to farmers and small businesses shows that poor people, when access to financial services and price sensitive market, repay loans and profits used to build income and assets. This is not surprising because the only realistic option is for them to borrow in the informal market at rates much higher than market rates. Community banks, NGOs and groups of credit unions in the world at the local level have shown that these micro-credit can be profitable for borrowers and lenders who make microfinance strategies poverty reduction more effective.

Insofar as MFIs to become financially sustainable, autonomous and integral part of communities where they operate, has the potential to attract more resources and expand services to customers. Despite the success of microfinance institutions, only 2% of the world some 500 million small business owners are estimated to have access to financial services.

Grameen Bank, which is a synonym for microfinance, makes small loans to poor people without collateral. Founded in 1976, the Grameen Bank (GB) of over 1,000 branches (Branch includes 25-30 people on 240 teams and suppliers of 1200) in each province in Bangladesh, borrowing groups in 28,000 villages, 12 borrowers lakh more than 90% are women. At an annual growth rate of 20 percent in terms of its borrowers. The main feature is the rate of repayment of loans, which are as high as 98%. A most interesting aspect is the ingenious way the credit enhancement, without "guarantees". Loan system of the Grameen Bank is simple but effective. The system of the bank based on the idea that the poor have skills that are underutilized. There is a group lending strategy that uses peer pressure to ensure that borrowers advance and pay attention to managing their financial affairs in strict discipline, ensure that the final payment and borrowers to develop a good rating credit.

The business model where most of the works is to microfinance lending solidarity. Solidarity lending is a lending practice in small groups and encouraged each other along, provided that group members