Microfinance activities revolve around providing very small loans to poor people or nations in order to help start a business or fund a social project. There are many different types of microfinance activities which include grants, low interest micro-loans, and making credit available. Many organizations make microfinance loans of $100 or less to individuals in countries where that much money is enough to start a business and improve the surrounding area.
The most common activity in microfinance is providing small business loans to entrepreneurs in poor nations. These loans are amounts that are very small by First World nation standards, but in many countries $100 to $300 is more than enough to fund an entire business start-up including materials, supplies, advertising, and an emergency fund. These loans can bring profitable businesses to some of the most destitute places in the world, and the prosperity of even a few business owners can be enough to help lift an entire village out of poverty. Banks traditionally don't make loans that small, which is where microfinancing comes in.
There are also microfinance grants that are offered by various organizations. The idea behind microfinance grants is that small donations given to specific villages, small business start-ups, or very specific projects will be a more efficient way of using donated money than a large-scale donation. One of the major advantages of a microfinance grant is that the structure forces a clear use for the money. Each grant can be traced to a specific person, business, or place as opposed to large-scale charity, where it's easy for many donations to slip through the cracks or get eaten up by administration fees.
One of the most active sectors of microfinance is charity. Microfinance has caught on with many charities that allow people to donate directly to a project needing financing without using a bank as a middleman. Kiva is one example of a charity that does this. An individual requesting a microfinance loan can tell his story, what he wants the money for, and how much is needed to get going. A person can look through the individual requests and use PayPal to donate however much she wants toward these loans. The charity takes a small percentage, and then gives these loans out with low interest rates to help people fund microfinance projects across the world.
Monty Dayton is a professional freelance writer who has worked for the ACLU, Touchstone Publishing LLC, the University of Alaska, Fairbanks and many other employers. He holds a Master of Fine Arts in creative writing from the University of Alaska and loves writing about travel, the outdoors and health topics.