Microfinance is banking for the unbanked — providing tiny loans ($50-$1,000) to people too poor for traditional banks. It serves street vendors, small farmers, artisans, and women entrepreneurs in developing countries. The idea is simple: even a small loan can help someone buy a sewing machine, stock inventory, or start a business that lifts them out of poverty.
Muhammad Yunus founded Grameen Bank in Bangladesh in 1983 and won the Nobel Peace Prize in 2006 for pioneering microfinance. His model: lend to groups of women (peer pressure ensures repayment), charge reasonable interest, and require weekly repayment. Grameen achieved repayment rates above 97% — better than many commercial banks.
India's microfinance sector serves over 6 crore borrowers with outstanding loans of Rs 4+ lakh crore. Major players include Bandhan Bank (started as an MFI), SKS Microfinance (now Bharat Financial), and CreditAccess Grameen. However, microfinance has faced criticism — the 2010 Andhra Pradesh crisis saw borrower suicides due to aggressive collection practices, leading to strict RBI regulation of the sector.