Today, our topic is microfinance.
Here is the vocabulary: It is a much longer list today. Listen closely, and listen to this section a few times if you need to!
- Microfinance: this refers to the financial services provided to low-income individuals or groups who are typically excluded from traditional banking.
- Working capital: money that the entrepreneur can use for day-to-day operations, or purchase transport or equipment.
- Microcredit: A part of the field of microfinance, microcredit is the provision of credit services to low-income entrepreneurs. Another way to say microcredit is microloan.
- Collateral: Something offered as security for the repayment of the loan.
- Unbanked: A term used to describe the world’s working poor who are outside of the formal banking sector.
- Microentrepreneur: Microentrepreneurs are people who own small-scale businesses that are known as microenterprises.
- Financial Inclusion: Financial inclusion happens when people have access to a range of banking products at affordable prices.
- Group Lending: Group Lending happens when a group of people makes a collective repayment promise.
- Sponsors: An individual who supports a borrower.
I also want to remind you of a word you learned on last week’s podcast “pledge”. Remember? To pledge means “to promise”.
The idea behind microfinance makes sense: it is a way to get working capital into the hands of microentrepreneurs so that they can fund their small businesses. These micro-loans are small, but they can make a big difference to the borrower because it allows them to buy merchandise to resell, to buy supplies for their production, or to invest in a means of transportation – and that might be something as simple as a bicycle. Microfinance puts money into the hands of microentrepreneurs, giving them a chance to grow.
Microfinance fills a need because traditional banks don’t like to lend money to people who have no financial history and no collateral to offer as a guarantee.
Microfinance solves this problem by replacing the need for collateral, formal documentation, and credit history with another system that guarantees repayment of loans: social networks based on trust and familiarity.
These so-called trust networks are groups that have joined together to somehow guarantee each other’s loans. They recommend each other. They sponsor each other. They support each other, and they encourage and they might even help each other pay back their loans. Microfinance can also be one-on-one, but what builds the trust is a high level of familiarity because the contact between the lender and borrower is personal and frequent.
When all this works as planned, the microcredit system can grow and eventually, the goal is for the unbanked to become banked, eventually moving into the formal banking sector, now that they have established a good credit history.
Okay friends, well, you have heard some new vocabulary and you have heard a very incomplete summary of microfinance.
Let me leave you with a couple questions that you should think about in English right now.
How has microfinance succeeded in your country? Is the microfinance sector growing, or getting smaller? And why do you think that is?
Jump back to the beginning of the podcast and review the vocab if you need to, and just form a few sentences in English and practice those in your head, or better yet, write them down.
That’s all for today. Thanks for joining me for this episode of English for Economists. If you enjoyed this English vocabulary lesson, you might be interested in our International Aid podcast lesson.
Image credit: By Brett Matthews – Own work, CC BY-SA 3.0,