Microfinance can help poor people in a number of ways.
Firstly, it can provide micro-entrepreneurs with the capital needed to operate and expand their businesses.
Indeed, having a reliable source of credit allows micro-entrepreneurs to better plan their business activities and manage their cash flow. Although the size of the loans may seem small, sometimes just $100, it is worth remembering that for half of the world’s population who survive on less than $2 a day; this is still a significant sum.
Secondly, through the increased income generated by their businesses as well as the ability to save and obtain loans, micro-finance allows poor people to build their assets, for example by acquiring land, constructing or improving their homes and purchasing livestock and poultry.
Thirdly, it can reduce poor people’s vulnerability. Access to credit, savings and insurance can help them to smooth cash flows and avoid periods when access to food, clothing, shelter, or education is lost. Microfinance can make it easier to manage shocks such as sickness to the family breadwinner or theft.