Microfinance may be termed as a type of system that offers financial services to lower income or unemployed individuals or groups, who otherwise may not have access to conventional financial services. Microfinance is based on the idea that lower income individuals may be able to lift themselves from the shackles of poverty, if given access to financial aid. Microfinance organizations may also offer competitive interest rates. Although microfinance loans operate at the low-income level, the loan repayment rate is higher than the rates of conventional lenders.
The ultimate goal of microfinance is to provide low-income individuals or groups with the prospect of becoming self-sufficient, by providing financial services like savings, borrowing and insurance. Microfinance may also provide financial assistance for small businesses, which may not be provided by mainstream lenders. Microfinance is vastly popular in developing countries, but also has a presence in developed countries. According to the World Bank estimation, more than 500 million people across the world have been directly or indirectly impacted in a positive manner by microfinance operations.