Microfinance, for profit and Non for profit, small and micro business

Here is a little bit of all that I have heard in the past year; since I started working on the microfinance field there are many concepts and differences one should be able to understand that is confusing, even the regulating organisms have some issues in defining and making differences among the concepts.

Many conversations have taken place in the past 10 years about the fact of microfinance being an important way of helping the poor, but does a microfinance institution have to be non for profit to have a social impact? Or it is necessary to be profitable to keep helping as much microentrepreneurs as possible?

 In my own thoughts,  if an institution either for profit or not wants to grow, expand, help more people, and be stable it have to have a way of paying  its bills and obligations as well as serving more clients. Managing a financial institution should not be confused with charity, the idea is to help people to be successful not to give them a present to solve their problems one time only, the philosophy is to teach them how to work their finances and get out poverty for good, not to solve an issue one time and then make them be supported by the institution.

When microentrepreneurs ask for a loan for their businesses they are looking for support and a way to make their businesses grow, for them it does not matter if the institution is for profit or not, they understand that they need the money and they are happy to pay it, they know any business has expenses and the microfinance institutions are no exception.

Another topic of many discussions is the differences between  small businesses and microbusinesses, a microfinance institution is that what its mission is to bring services to those unattended by banks, the ones that have a tiny establishment usually with less than 10 employees and a huge need of a very little amount to solve an issue, small business loans are for those that have bigger business and normally the amounts are way heavier; in my own opinion, and even being the necessities the same in different scales, we should never generalize when talking and serving small businesses and microbusinesses.

There are two different markets and two different methodologies, there are differences in the amounts to be lend, the requirements, and the condition; even the way of approaching the clients is very different, so why putting all in the same bag?

This industry has the potential of impacting many communities and help countries fight poverty, but there is a lot to be said and done, starting with clarifying concepts and defining markets.

Melina Santandreu

Marketing Director

OUR MicroLending