Microfinance is a term that describes financial services aiming to provide alternative financial resources to underbanked communities. The minimum capital requirements on loans offered by many large financial institutions exceed the amount needed for small business owners to invest in and grow their businesses. Therefore, many entrepreneurs who need to access capital turn to unsustainable sources of financing or even risky payday lenders. These institutions often charge triple-digit annual interest rates, use aggressive collection practices, and hook clients into a cycle of debt. Microfinance offers an alternative that is beneficial for borrowers and financially secure for lenders, enabling businesses to thrive and helping lenders to grow and help more clients. Loans classified under microfinance typically vary from $100 to $25,000. Many microfinance organizations offer additional services that traditional banks do not provide, such as financial education and credit-building programs.
Versions of microfinance have been around for centuries. Modern microfinance, however, owes its recent popularity to Grameen Bank. Founded in Bangladesh by Muhammad Yunus in 1983, this Nobel Prize winning institution now has more than two thousand branches, 8.81 million borrowers, and boasts a repayment rate higher than 99%. Microfinance has evolved to take many forms: some organizations are local, operating in one city or metropolitan area. Others hone in on one country: members of Forbes’ list of top 50 global microfinance institutions hail from places as diverse as Colombia, Bosnia and Herzegovina, Mongolia, Morocco, and Albania. Still other organizations operate globally and utilize varying strategies to target clients. Kiva has an online crowdfunding platform, and Accion International supports global microfinance institutions by providing them with technical assistance, debt and equity investment, and training.
Many microfinance organizations, including Grameen Bank, focus on lending to women. ProMujer, an organization that lends to women in Latin America, offers women access to quality health-care and preventative health education services. Especially in rural areas and in developing countries, women are considered both an untapped labor force and reliable borrowers. When coupled with educational services, microfinance can enable women to earn extra income and support their families.
Where HMFI Fits In:
HMFI disburses loans ranging from $500 to $10,000 with a fixed low interest rate of 6%. The organization was founded with inspiration from newly established microfinance lenders in the United States and an understanding that a lack of alternative financial resources is not unique to developing countries. The DC metro area ranks consistently as one of the most underbanked regions of the US. HMFI not only offers reliable access to capital for clients to grow their businesses, but also a committed partnership. Our internal structure, comprised of five departments, ensures that HMFI is invested in serving clients, raising funds, and financing loans. We offer financial coaching sessions with five modules that cover a range of topics from saving strategies to building a credit score. In the large world of microfinance, HMFI strives to make a difference in the DC metro community.