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Microfinance for Entrepreneurs & Small Businesses

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  • 0:39 Microfinancing
  • 1:57 Uses and Facts
  • 2:39 Success
  • 3:28 Lesson Summary
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Lesson Transcript
Instructor: Christopher Sailus

Chris has an M.A. in history and taught university and high school history.

In this lesson, we define what microfinancing is and explore the uses and goals of this incredibly new and exciting form of economic assistance geared toward helping those in the third world.

Microfinancing and Entrepreneurship

Have you ever been unemployed? It can be a tough time for everyone in your life, whether you are older and have a family, or younger and just starting your adult life. Likely, for that period of time you had little or no money to do the things you wanted, and may have even needed assistance getting basic things like food. Though you likely found a job and turned things around, it can be incredibly difficult to do the same in developing countries where jobs and money are not as plentiful as they are in North America. That reality has led to the creation of the microfinancing sector - the new trend in charity and banking that is attempting to help the poor, impoverished, and unemployed.

Microfinancing

So, exactly what is microfinancing? Banks, non-governmental organizations (NGOs), or other institutions involved in microfinancing provide loans, credit, and other financial services to the poor or unemployed in impoverished regions of the world or even our own country. These institutions fill an important void; after all, traditional financial institutions are designed to serve people already with money. These banks and credit institutions have little use for the poor and destitute. This leaves this entire segment of the population - in some developing countries, the vast majority of the population - without recourse to bank accounts to save their money or loans to build a business.

Microfinancing institutions attempt to fill this void by providing loans to budding entrepreneurs. These loans tend to be very small - anywhere from $50 to a few thousand at most, per person. The loans are designed to be paid back in a short period of time, while still remaining flexible to the needs of the recipient. Additionally, the loans tend to be very low interest as well, providing only enough revenue for the microfinancing institution to cover operational costs - though, it should be noted, the amount of profit and interest differs depending on the lending organization.

Uses and Facts

So, now that you know what microfinancing is, you probably wonder why you should care at all, right? Though microfinancing is a very recent trend, it is proving incredibly effective at lifting individuals in third-world countries out of poverty and helping to encourage entrepreneurship, particularly among women in third-world countries. Many people who take advantage of microfinancing are impoverished women who are trying to open a shop, sell their homemade wares to a wider audience, or even do something as basic as develop some personal savings. These actions, in turn, help improve women's status in societies that are generally male-dominated. It gives women of third-world countries more confidence and more visibility in the public sphere.

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