|The term microfinance is generally used to describe efforts to promote financial systems in developing countries and transition economies in order to improve the access of micro entrepreneurs, small and medium enterprises, small farmers and other economic units – the target group – to financing sources. This target group generally does not have access to financing from traditional commercial banks since lending to them is regarded as too risky and too costly. However, in order to grow and prosper enterprises need constant credit supply. Hence by offering financial services specifically tailored to the target group microfinance banks stimulate economic development. In contrast to NGOs and other similar kinds of credit programs microfinance banks do not merely channel development assistance funds to previously selected sectors of the population. Instead they are set up with the goal to become permanent, stable and efficient financial institutions. In our opinion, only credit programs which are designed to continue indefinitely as institutions can be regarded as instruments of development policy. Therefore, we consider it essential to plan, design and implement such credit programs as part of a sustainable financial institution. In order to become sustainable, however, a microfinance bank has to employ a commercial approach to microfinance based on the principle of financial self-sufficiency. This implies a rate of return on capital that accommodates the level of risk incurred and a moderate profit sufficient to enable the institution to grow.
Over the last three decades the concept of Microfinance has evolved considerably towards a more complete vision of the needs of the target group, including not only credit facilities but also other financial services. Today microfinance banks around the world offer various kinds of financial services to micro entrepreneurs and SME, such as: credit, deposit facilities, money transfer facilities, remittances from abroad, insurance etc.