LESSON VII
MICRO-FINANCE INSTITUTIONS
Microfinance is the provision of a broad range of financial services such as –deposits,
loans, payment services, money transfers and insurance products – to the poor and low-
income households, for their microenterprises and small businesses, to enable them to
raise their income levels and improve their living standards. MFIs are financial
institutions that specialize in lending to small and medium sized enterprises. Unlike banks,
MFIs rely on stakeholders and grants, donors and trust funds-besides earning interest from
loans to SMEs that qualify. MFIs are governed by the Micro Finance act of 2006-
Examples are Jamii Bora and Faulu Microfinance, Kenya Women Micro Finance Bank
etc.
Importance of micro-finance
1. They provide financial services to self-employed and low income earners
2. Major financier of small-scale business
3. Provide their loans with an affordable rate
4. Supervise or inspect the business against which financial services is provided
therefore acting as an impetus to having more people in the economic venture into
business.
Key operating Principles for Microfinance
1 The poor needs access to appropriate financial services
2 The poor has the capability to repay loans, pay the real cost of loans and generate savings
3 Microfinance is an effective tool for poverty alleviation
4 Microfinance institutions must aim to provide financial services to an increasing number
of disadvantaged people
5 Microfinance can and should be undertaken on a sustainable basis
6 Understanding the Market – A successful MFI understands its market and designs
products that serve its clients
7 Streamlined Operations – Streamlined operations help MFIs make efficient use of
resources and keep cost low
8 Informal Sector Practices – This practices help an MFI manage risk, motivate repayment,
MICRO-FINANCE INSTITUTIONS
Microfinance is the provision of a broad range of financial services such as –deposits,
loans, payment services, money transfers and insurance products – to the poor and low-
income households, for their microenterprises and small businesses, to enable them to
raise their income levels and improve their living standards. MFIs are financial
institutions that specialize in lending to small and medium sized enterprises. Unlike banks,
MFIs rely on stakeholders and grants, donors and trust funds-besides earning interest from
loans to SMEs that qualify. MFIs are governed by the Micro Finance act of 2006-
Examples are Jamii Bora and Faulu Microfinance, Kenya Women Micro Finance Bank
etc.
Importance of micro-finance
1. They provide financial services to self-employed and low income earners
2. Major financier of small-scale business
3. Provide their loans with an affordable rate
4. Supervise or inspect the business against which financial services is provided
therefore acting as an impetus to having more people in the economic venture into
business.
Key operating Principles for Microfinance
1 The poor needs access to appropriate financial services
2 The poor has the capability to repay loans, pay the real cost of loans and generate savings
3 Microfinance is an effective tool for poverty alleviation
4 Microfinance institutions must aim to provide financial services to an increasing number
of disadvantaged people
5 Microfinance can and should be undertaken on a sustainable basis
6 Understanding the Market – A successful MFI understands its market and designs
products that serve its clients
7 Streamlined Operations – Streamlined operations help MFIs make efficient use of
resources and keep cost low
8 Informal Sector Practices – This practices help an MFI manage risk, motivate repayment,
