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Microfinance in Short
Microfinance is the provision of financial services such as savings, credit, cash transfers and micro insurance to economically active poor and low-income people. These services are generally meant to support productive purposes and are characterized by:
- A focus on the entrepreneurial poor - provision of services to low-income clients, women and men, with the capacity to generate a livelihood but lacking access to financial services.
- Client-appropriate lending - simple and convenient access to small, short-term and repeat loans, with the use of collateral substitutes (e.g. group guarantees or compulsory savings) to motivate repayment. Informal appraisal of borrowers often based on character references and simple cash flow analysis rather than lengthy application procedures.
- Secure Voluntary Savings - services that facilitate small deposits, convenient collections, and ready access to funds - either independently or with another institution.
Microfinance is one element in the facilitation of refugee self-sufficiency and the promotion of sustainable livelihoods. Services such as savings, credit, money transfers and micro insurance have the potential to be powerful tools for supporting livelihoods among refugee populations if, and when, the minimum conditions exist. These services and products can help safeguard assets, build financial capital and open economic opportunities. Reliable sources of credit can provide a basis for planning and expanding business activities. Access to financial products such as savings schemes, loans for learning or training, insurance and remittances can help refugees diversify their income sources to meet basic needs and cope with economic shocks. They also reduce vulnerability to risky lending practices or insecure financial schemes.
These structures are often lost during a crisis. UNHCR works with financial institutions, partners and local governments in host communities to allow access to services and products where they exist, and develop them where they do not. To work effectively, these services must be stable and reliable. Refugees must be able to trust service providers to protect their assets and help them build financial capital. Often, services should be paired with financial literacy training to teach people the value of products and how best to use them. Training is especially important where services available in the host community vary from those found in refugees' communities of origin.