Using private enterprise principles to help the poor.
Microfinance involves making very small loans to very poor people to support their very small businesses.
When I say small, I am really not exaggerating. Here in the Philippines, loans provided through Opportunity International (OI), the microfinance institution with which I am currently traveling, are as small as $80. The size of the loan can grow over time as businesses develop and borrowing capacity is proven. Interest rates charged on the loan are quite low, 2% here in the Philippines, so that they do not pose an undo burden on the borrowers.
Why is there a need for microfinance? The clients of organizations like OI are generally people that are considered “unbankable.” They work in the informal economy and generally do not have any assets to pledge as collateral for a loan, nor do they have tax returns to verify income. The size of the loans they require…
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