This chapter explains the overview of microfinance; the efficiency of microfinance institutions (MFIs) and sustainability; microfinance and interest rates; microfinance and information technology (IT); microfinance, social capital, trust, and repayment rates; microfinance and health care; informal microfinance institutions (IMFIs) and tourism entrepreneurship; and the importance of microfinance in emerging nations. Financial services provide a method for people and businesses to obtain credit and manage available assets on a continuous basis. Microfinance has a significant role in bridging the gap between formal financial institutions and rural poor households. MFIs can access financial resources from banks and other financial institutions and provide financial services to poor households. The chapter argues that promoting microfinance has the potential to enhance financial performance and reach economic goals in emerging nations.
TopBackground
Microfinance emerged in the 1970s as an effective strategy to increase the credit access among poor households in developing countries who were routinely ignored by formal lenders and left to borrow from informal money lenders at elevated interest rates (Rajbanshi, Huang, & Wydick, 2015). Over the past three decades, microfinance has become a popular development intervention (Baruah, 2010). Microfinance has dramatically changed during the last decade, moving from the scope of donor-financed non-governmental organizations (NGOs) toward a widely disparate industry (Mersland, 2009), including a growing number of commercial banks.
MFIs have helped thousands of people to cross the poverty line (Youssry, Winklehake, & Lobera, 2015). The development of microfinance programmes in Europe has increased due to the establishment of a large number of small businesses, increase in unemployment, high inflation rates, and the poor population, which all constitute the stimulating conditions of microfinance development (Jawadi, Jawadi, & Dechamps, 2010). Many microfinance programmes are heavily dependent on subsidies (Quayes, 2012). MFIs’ subsidies and donations affect their outreach activities, where the institutions that receive more subsidy funding tend to display greater outreach to poor households. Adverse selection, moral hazard, absence of enforcement mechanisms, and high costs should have made microfinance nothing if non-existent, or at least subsidized (Shapiro, 2015).