A micro-finance institution is either an informal lending institution or a bank.
A micro-finance institution (MFI) is either an informal lending institution or a bank that offers loans to low-income borrowers. Micro-finance institutions try to help eradicate poverty and create sustainable development in rural areas and slum settlements in urban centers by providing small loans. In the developing world, Kenya, a small country in Africa, is one of the countries with successful micro-finance institutions. Equity Bank, which has 4 million bank-account holders; half of all the country's banked population, started as a small, rural micro-finance company.
Savings
Micro-finance institutions offer safe custody to members' money. Many of the members in developing countries are women's groups. They take loans by guaranteeing each other and are able to start micro and small informal businesses. The wide distribution of the MFIs makes it easier for these groups and individuals to accumulate petty cash into large savings for future development projects.
Credit
Micro-finance institutions offer loans to small-income earners such as farmers, green grocers, and car garage operators. The institutions first offer training to their customers about investment opportunities before they give out the loans. The loans help in expansion of the businesses. These credit facilities lead to improvement in terms of education, health, empowerment and environmental conservation in the community.
Insurance
MFIs offer insurance coverage to farmers for crops and livestock. This mitigates against the vagaries of nature such as reduced rain which may cause crops to dry or animals to die of hunger due to drought. Offering insurance coverage to small-income earners helps reduce the impact of unforeseen external shocks and also encourages investment.
Money Transfer
Micro-finance institutions have aided in money transfer. Today, there are various programs that ensure that people can send and receive money via the telephone. Money transfer by MFIs also includes the payment of water bills, electricity bills or even payment for purchased goods. In Kenya, the boldest step that the micro-financial sector has taken towards improvement of remittance services is the introduction of M-Kesho account by Equity bank. Now, small- and micro-business owners will be able to deposit their small daily earnings to the MFI through their mobile phones.
