What is microfinance?

For the most part, microfinance is a recent phenomenon, getting its start in the mid 1970s.  The pioneer of this movement is Muhammad Yunus, who won the 2006 Nobel Peace Prize for his efforts.

His belief is that extending credit - in even small amounts - can have a big impact on dealing with poverty.  The loans help to finance such things as supplies and equipment.  The amounts typically range from $25 to $300 or so.

To deal with the risk of non-payment of loans, microfinance relies on some key requirements.  First, the loans are made to small groups (say four or five people).  This helps to create peer pressure.  After all, if there is a default, the whole group is responsible.

Next, the loans are typically for women, who tend to use the loans for the intended purposes.

What's more, loans are paid off in small increments - not lump sums.  This makes the loan process much more manageable for borrowers.

So, how large is the microfinance market?  According to the World Bank, there are more than 7,000 microlending institutions.