For a long time, banks and economists thought that the millions of poor people who now use microfinance services simply couldn’t afford loans, and they were right. They couldn’t afford the relatively large loans that banks offer to people in the developed world because even the lowest interest payments on a big loan would be way too expensive for them to make. It wasn’t economical for banks to lend small amounts of money to people who were far away from traditional bank branches and had a limited history of borrowing.
However, as many microfinance institutions have discovered in the last few decades, many of these people can afford a slightly different kind of loan: a microloan. Thus there are nonprofits and for-profit micro financiance institutions (MFIs) that realize it can be profitable to service the otherwise “unbanked” community. Microfinance is self-sustaining when it attracts new kinds of investors who realize the potential and power in reaching the many more millions of people who desperately need, and want, access to financial services.
While individuals, companies, and governments are beginning to see the potential size and impact of the market, there are still plenty of people that really can’t afford a loan and, for the most part, they don’t receive any. Many different organizations – mainly charities and governments – offer other types of services that don’t charge any interest so that eventually these people might be able to afford microfinance services.
With the support of charitable organizations and everyone who donates to them, microfinance institutions and banks everywhere will be making lots more loans to people who can now afford them.