Microfinance Loan – Very small loans which are given to people in low income countries (LICs) to help them start a small business

To remember the meaning of the term Microfinance Loan, use the following mnemonic:

She bought her micro mini car on finance, with a small loan (microfinance loan), which she soon paid back even though she was on a low income.

The idea behind microfinance loans is that low-income people can lift themselves out of poverty if given access to money to start their own businesses.

The interest rates are either very low or, in the case of donations from charities, non-existent – that is, only the amount of the loan has to be repaid.

As an example, a bank in Nigeria lends money to people so that they can buy sewing machines and get training to become tailors who sell clothing to make a living.