It is difficult for banks to gain any profits from lending to poor people, and with no established credit, the poor can be an investment risk for any institution. Programs have been developed, however, that are designed to reduce poverty and provide financial services for the poor. These options often come under a product umbrella known as microfinance, which involves extremely small amounts of money lent to the poor by banks, other lending institutions and foundations. They are tiny loans that in poor, remote areas can go an extremely long way.
Lending is among the services for the poor mainly provided by microfinance institutions (MFIs). These banks often extend loans to people in underdeveloped nations who otherwise cannot earn money. With an extremely small loan, a poor individual can run a household or open a business and begin to generate income on his or her own in addition to learning financial discipline.
There are financial services available for certain demographics of the poor, including women and children. An MFI might, for example, offer women in a poor community the option to open a savings account. This not only teaches financial discipline but allows these women to earn interest on savings, which in turn grows that investment. Poor children can begin to learn how to save through junior savings programs offered by MFIs, creating the potential to steer an entire generation toward success and away from poverty.
The benefits of services for the poor, such as microfinance, are immeasurable. This financing allows poor residents to generate a stream of income and subsequently run a household, allows them to establish credit so that future loans and grants will become available and promotes business and commerce in a community that otherwise might be unproductive. The chances and opportunities for education among children of the poor are increased as a result of these financial services for the poor. Sickness is mitigated as financing increases access to medical products, facilities and even healthcare. The result is a better standard of living in poor and remote areas.
Sometimes financial services for the poor come in the form of provision by a large institution, such as a foundation. With little or no money, it is nearly impossible for some of the world’s poor people to access technology, including banking services. Programs at large foundations and technology service providers often provide poor, rural communities with mobile phones and service, allowing poor communities to complete financial transactions on these devices.