What is Microfinance?

 

 

 

 

Microfinance is providing financial services to clients who lack access to standard credit opportunities.

Nobel Peace Prize winning economist Dr. Muhammad Yunus first implemented the microfinance business model in December 1983, opening Grameen Bank. As the world’s first fully-developed microfinance lending institution, Grameen Bank has helped over seven million low-income borrowers secure over six billion dollars in loans. Their borrowers have little to no credit and are not required to put up collateral. Though this may sound financially dangerous, microfinance institutions minimize risk with group-lending practices. The practices hold borrowers accountable to others in the group, using co-member accountability to guarantee repayment. As borrowers repay loans collectively, they build credit individually.
Hoping to follow in Grameen’s footsteps, microfinance lending institutions have sprung up around the world. Many focus on alleviating poverty and
developing communities. Countries in South America and Southeast Asia especially have been successful in using microfinancial techniques to catalyze development in their most impoverished areas. These group-based techniques—including collaboration and financial education—have led entrepreneurs to higher profits and increased savings.

Though microfinance has been a successful business model for over 30 years, it currently reaches only 20% of its possible customers. This unreached 80 percent of the market is largely located in industrialized nations like the United States, perhaps because our economy’s prominence leads to the misconception that all American entrepreneurs have ample access to the tools they need.

Forza, a microfinance institution founded by students with an entrepreneurial bent at the University of Alabama, knows this is not the case. It recognizes that traditional banks do not provide low-credit entrepreneurs equal or adequate opportunities to start their ventures. It also recognizes that non-traditional lenders give entrepreneurs access to capital only at unreasonable rates, causing ventures to drown. Forza, like other microfinance institutions, hopes to provide some middle ground. In an effort to foster entrepreneurial equality, Forza aids hardworking entrepreneurs by connecting them with the intellectual and fiscal capital they need.