Microfinance is defined as classical financial services microcredit, savings, insurance) for poor clients who are usually considered as defaulters if they have no collateral, no stable job or no credit history. Without these financial services, poor people have to resort to much more expensive credit sources, like moneylenders. This limits their ability to develop an activity and thus pull out of the poverty.

Microfinance provides millions of men and women with the opportunity to find their own means of support. Microfinance becomes a way to: - Better income sources thanks to reliable microcredits that allow their beneficiaries to plan, start, and develop their projects. - Increase people’s ability to provide for their different needs and pay for their expenses (school fees, health expenses, funeral expenses, religious ceremonies…). - Increase the beneficiaries’ ability to overcome risks and shocks (in case of natural disasters for example). - Save money in a safe and profitable way. - Increase their capacity to build a better future allowing them to increase their income and thus invest in their children’s education, nutrition and better living and health conditions. - Improve women’s status and highlight their role within the household and the community since microfinance programmes are mainly destined to women. - Reach self-sufficiency and enable the poorest to be responsible players in the improvement of their living conditions..

This issue worries many people in rich countries: MFI’S interest rates are too high! This statement, when made so raw, can be shocking. It is both true and false and should be put into perspective. It is true in the sense that - in absolute value - interest rates of 20 to 40 % are very high. No one can deny it. To allege the contrary would be denying the obvious. Yet if this rate is put into perspective, it is no so shocking. First of all, let’s compare these rates which rich countries’ rates. Who has never astonishingly discovered consumer credit institutions’ rates? Their 15 to 18 % rates do not shock anyone. These consumer credit institutions even take the liberty of using the term microcredit in their marketing campaign, which leads to an unacceptable confusion. Let's make this clear once and for all, consumer credit in France is not microcredit! Even so, this comparison does not justify why interest rates are so high. Indeed, the rates are high but microcredit is a much less expensive resource than the only one the beneficiaries have access to: usury, which annual rates run from 100 to 300 %, depending on the country. When we meet the beneficiaries in the field, we are often surprised when we realize that the level of interest rates is not their main concern. Indeed, the activities financed thanks to microcredit generally enable them to make enough profit to reimburse their credit and provide them an acceptable margin. Moreover, the relative share of these rates in the expenses of a micro entrepreneur is often not as penalizing as we imagine. The low costs of work and of commodities combined with the near absence of taxation or social contribution barely put a strain on the micro entrepreneur’s margin. This does not explain why rates are so high. In fact, the credit delivery and its monitoring require human resources and time: beneficiaries have to be trained, their files have to be studied, the cash delivered, the recovery made, etc. There are many things to do, sometimes for token amounts. The making of a €20.000 loan for a classical consumer often takes less time than a €50 loan to a micro entrepreneur. And the exact purpose of microfinance is to make tiny loans, hence very small margins, in terms of absolute value. Furthermore, the MFI does not get funded for free (it has to borrow from institutional funds to lend again). Usually the rates are around 10 / 12 %, and the IMF has to charge these costs to its beneficiaries in addition to its operating costs. Microfinance institutions have to become self-sufficient and economically balanced to operate sustainably. Otherwise, the whole microfinance sector collapses. This is why, considering the loan processing costs, it will be necessary to grant a great number of loans to reach the balance. This great quantity of files that have to be processed involves costs the MFI has to pay for and pass on to their clients, which explains the level of the rates. Of course, as everywhere, there are abuses. Some recent examples show that we have to stay vigilant. However, the trend is towards a decrease in interest rates, in particular because of competition and the increase of volumes. The average microcredit interest rate in India, one of the most mature countries on that subject is around 15 %, barely more than in France. The trend is clear: the more microfinance develops, the more the rates decrease. Our part as a low cost funding platform for MFIs will be, when we have enough influence, to incite MFIs to lower their final rates.

Even though microcredit gained popularity in developing countries as a means to reduce poverty, it also gained ground in developed countries. In developed countries, managers with no collateral or no credit history and people in insecure jobs have difficulties to obtain working capital from traditional banks. Microcredit helps them by giving them access to small unguaranteed loans. In France, were job security is less and less a given, microcredit is considered as a model to follow and several organizations provide comparable services according to a methodology developed by the ADIE (Association pour le droit à l’initiative économique, Association for the right to Economic Initiative). However, microcredit programmes in developed countries differ from developing countries in their structure. Moreover, the system of social responsibility is barely used.

Microfinance Institutions (MFIs) are NGOs, self-help groups, credit cooperatives, rural banks and even branches of commercial banks. To provide microfinance services, MFI are subject to the regulation of the country’s financial authorities (in most of the case, the central bank). MFIs are constantly looking for funds to develop awareness raising.