Microfinance institutions (MFIs) have been around for quite some time now and have helped millions of people all over the world. They provide much-needed financial services to the world’s poorest people.
Many low-income individuals who are unable to obtain traditional loans from banks have benefited from support from microfinance institutions.
Many poor people have managed to pull themselves out of poverty by using loans from MFIs. These are the prime target market for microfinance institutions.
However, there is a recent trend of MFIs targeting other markets, such as small businesses and women entrepreneurs.
So, who is the target market for microfinance?
Let’s take a closer look.
What is Microfinance?
Microfinance is the provision of financial services to low-income individuals who are unable to obtain traditional loans from banks.
Microfinance includes a wide range of financial services, such as savings accounts, credit, insurance, and money transfers.
These services help poor people to start or expand businesses, send their children to school, and cope with unexpected expenses.
Who is the Target Market for Microfinance Institutions?
The best way to understand the target market for microfinance institutions is to understand who benefits from them. These are the people who qualify for microfinance and who use it to improve their lives.
Such an analysis gives us the following main target market for microfinance institutions:
- Poor people who are unable to obtain traditional loans from banks
- Poor people who want to start or expand their businesses
- Poor people who want to send their children to school
- Poor people who need to cope with unexpected expenses
- Women entrepreneurs from disadvantaged backgrounds
Let’s look at each of these segments in detail.
#1 – Poor people who are unable to obtain traditional loans from banks
Many poor people are unable to obtain traditional loans from banks. This is because they lack the collateral that banks require, such as land or property.
They also often have unstable incomes and are therefore considered to be high-risk borrowers by banks.
Microfinance institutions are able to provide financial services to these individuals because they use a different lending model.
Instead of collateral, they use a group lending model. Under this model, borrowers are grouped together and each member of the group is responsible for repaying the loan.
This model can be very effective in lending to poor people.
#2 – Poor people who want to start or expand their businesses
Many poor people are unable to get conventional jobs and their only hope is to use some minimal skills that they have and start a small, often tiny, business.
Such businesses are often ignored by banks and other financial institutions because they are considered to be too risky and the return on investment is often too low.
Microfinance institutions, on the other hand, are willing to lend to these individuals because they understand that these businesses have the potential to grow and become profitable.
Also, many microfinance institutions are started and exist for the express purpose of helping the poor to start businesses.
#3 – Poor people who want to send their children to school
The great irony is that schools in rich countries are free but in most poor countries, parents have to pay for their children to go to school. This can be a significant barrier for many poor families.
Not only can many poor families not afford basic school expenses, but by sending a child to school they forgo the child’s potential earnings because many children end up working on a family farm or the family’s small business.
This is one of the main reasons why many poor children in many countries do not go to school and this makes their parents a target market for microfinance institutions.
Microfinance institutions can provide loans to these parents so that they can pay for their children’s schooling.
This is often seen as a good investment because it can break the cycle of poverty in families.
#4 – Poor people who need to cope with unexpected expenses
Many poor people live hand-to-mouth and have no savings to fall back on in times of need.
This can be a major problem because unexpected expenses, such as medical emergencies or the death of a family member, can often push these families into debt.
Microfinance institutions can provide loans to these individuals so that they can cope with these unexpected expenses.
#5 – Women entrepreneurs from disadvantaged backgrounds
One of the segments of the target market for microfinance institutions is women entrepreneurs from disadvantaged backgrounds. These women often face discrimination in the workforce and have a hard time getting loans from traditional financial institutions.
Microfinance institutions are often able to provide these women with the financing they need to start a small business.
Using microfinance, women have started businesses like small shops, street vending, and agriculture.
This has often led to an increase in their income and a better standard of living for their families.
Microfinance is a type of financial service that is provided to low-income individuals who are unable to obtain loans from traditional financial institutions.
Microfinance institutions use a different lending model than banks. They are willing to lend to high-risk borrowers and use group lending instead of collateral.
The target market for microfinance institutions includes poor people who are unable to get loans from traditional banks, who want to start or expand their businesses, send their children to school, cope with unexpected expenses, and are women entrepreneurs.