Great Business Ideas: Microfinance

Great Small Business Ideas to Start: Microfinance

Microfinance is the business of lending small sums of money to entrepreneurs in the developing world, recognizing the ingenuity and commercialism of some of the world’s poor.

The idea

Microfinance works by loaning customers relatively small amounts of capital (eg $50) at a commercial rate of interest. This leads to the development of a product or to the realization of an idea. This loan is typically made via a local bank—a group of people who administer the scheme. This lending process stimulates a self-sustaining cycle of wealth creation.

Initially, major banks and financial service institutions, as well as governments and NGOs, were skeptical. Times have changed, and many organizations can now see the commercial, economic, and humanitarian value of this activity. FINCA International has supported this work and, together with others (such as Grameen Bank in Bangladesh), has shown that microcredit works well. In the view of Rupert Scofield, executive director of FINCA: “My hope is that this type of program encourages people to be honest, treat each other with respect, and succeed. What really matters is how determined people are to succeed.” Founded in 1984, FINCA (the Foundation for International Community Assistance) is a non-profit agency that pioneered microfinance—or “village banking.”

In practice

By addressing humanitarian concerns, microfinance provides hope and promotes prosperity. In encouraging responsibility and generating greater participation in society, it delivers other benefits, such as greater political, social, and economic stability.

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