What is the essence of 'microfinance'?

The essence of microfinance lies in its focus on providing small loans to individuals or businesses that typically do not have access to traditional financial institutions. This concept is rooted in the idea of empowering low-income individuals or entrepreneurs by offering them financial resources to help start or expand their businesses, improve their livelihoods, or create sustainable income sources. Unlike conventional banks, which often require collateral and a strong credit history, microfinance institutions (MFIs) are designed to accommodate those who are financially underserved.

By providing access to small amounts of credit, microfinance enables borrowers to invest in opportunities that would otherwise be unavailable to them, fostering economic development at the grassroots level. This approach has been particularly impactful in developing countries, where traditional banking infrastructures are lacking. Through microfinance, individuals can build credit history, improve their financial literacy, and ultimately achieve greater financial independence.

In contrast, the other options focus on lending practices or investment scenarios that do not align with the core principles of microfinance, as they involve larger sums and target wealthier or more established borrowers.