For whatever reason – if even for my own clarification – it seems logical to give a series of posts as to a proper understanding of the work and purpose of microfinance. Not that I propose to know more about this subject than anyone else, but simply for the sake of offering a debatably solid framework through which to view this sector of development work.
Therefore, this series of posts will be towards a humble explanation of what a microfinance work does, and is for, through the lens of working with the microfinance department of Missions of Hope in the slums of NairobiKenya.
So, I have simultaneously succeeded and failed in defending what is my first point, namely, the problem with using the word ‘microfinance’ in the first place. The problem with this word is the same problem with any word really, which is the numerous connotations of meaning and bits-of-reality associated with it from its use the world over. Clarification is therefore needed.
The Term ‘Micro Finance’ has two obvious components namely ‘Micro’ and ‘Finance’ .The word ‘micro’ is applied in terms of smallness – though somewhat dubiously, as there isn’t much small about a lot of microfinance – but is by and large aimed towards the beneficence of the poor/ low income communities of the world.
The word ‘finance’ is debatably obvious – though I’m always impressed upon hearing how many people forget what all ‘finance’ actually entails. For example, the needs of the poor go way beyond ‘micro-credit’, of course – as if our day to day financial services consist solely in taking business loans and being able to manage our bills, insurance, money transfers and savings all from a single business loan account. That would be foolishness.
Not only is ‘micro-finance’ a complex set of services, but it is also implemented in very different ways (i.e. local-scale microfinance groups operating from both individual and group lending methodologies to rural microfinance institutions like Village Savings & Loans groups to publicly traded institutions like Compartamos…etcetera).
Each institution in each country of the world functions with a different set of means towards a different set of goals, with a very different set of reasons as to why they’ve chosen their mode of operation.
Of course, we humans speak in generalizations in order to make sense of things – so I am of course not suggesting that we cease all ‘talk’ about microfinance, only that we recognize that our words in this area are quite often generally false if not tailored towards a specific area or people group. For that reason, specific reports and results must enhance the conversation of micro-finance the world over as to which particular models actually work in certain areas and why.
 According to CGAP’s website under ‘What is Microfinance?’ found here: http://microfinance.cgap.org/2009/06/05/what-is-microfinance/