What is microfinance and where is the industry going?

When talking about the provision of financial services to the poor, for a long time people, included the UN, used the word "microcredit". In fact, 2005 was declared by the UN "International Year of Microcredit," not microfinance.

It has been clear for a while though that poor people, the target population of these kind of services, do not only need credit to establish or expand their income generating activities: they do need and require savings, money transfers (just think of the immigrant population living in Europe or the US), insurance, housing.

The microfinance industry and its services providers are aware of this and are trying to meet the microentrepreneurs' needs through the design and delivery of new services.

The world after all is changing, and so are the needs of poor people. Cell phone subscriptions in the developing world for example have grown rapidly since 2000, to 1.4 billion at the end of 2005. That number is nearly double the 800 million in advanced economies. Whoever travels to developing countries can confirm this. Everyone seems to own a mobile phone.
One of the latest innovations in microfinance thus is to provide financial services to the financially excluded through cell phones.

Recent studies have discovered that there is a connection between cell phone use in poor countries and economic growth. Through market researches in China, India and the Philippines, McKinsey & Co. found that raising wireless penetration by 10% can lead to an increase in GDP of about 0.5%, or around $12-billion for an economy the size of China. A separate London Business School study had similar findings.

Grameen Bank was one of the first to develop in Bangladesh GrameenPhone, the first and largest mobile-phone provider in the country. They are now counting 10 million customers, including 250,000 "phone ladies" who provide village phone service to the poor, supported by a Grameen Bank microcredit.