Microfinance is the process of providing financial aid and services to people who have low incomes. This process includes people who find it difficult to gain an advantage from these services from banks and other financial institutions. These organizations only offer loans or credit to those who have properties that they may use as collateral and those who have a stable income.
The poor do not have these options. Microcredit is one variable of microfinance, which is designed to provide credit to people who are lacking funds. The proceeds are meant to go toward capital for a small business to make them self-sufficient and be able to find their way out of poverty. Through microcredit, people have the opportunity to acquire a loan without collateral or a steady income. The caveat is that they must use the funds to launch a reputable business enterprise that will earn them income.