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Microfinance vs. Financial Inclusion: What’s the Difference?

EthicalInvesetment

Most people would suggest that the main idea behind microfinance was “delivering useful financial services to tens of millions of people in a businesslike way.” Whereas, some describe it as “providing financial services in a way that helps people move themselves out of poverty.” That original spirit contained an end objective that went beyond delivering services in a business-like way.

The difference between financial inclusion and microfinance depends on which of these definitions you use. If we use the former definition, then there is a lot of overlap between microfinance and financial inclusion, with the key difference being that financial inclusion focuses on a very broad range of services and providers, while microfinance focuses only on a targeted range of each.

On the other hand if you take the latter definition then the key difference is the end objective. Financial inclusion seeks to make sure that everyone has access to useful financial tools, while microfinance wants to make sure that the use of those tools leads to positive benefits for those living in poverty. Under this definition, microfinance links in with other development needs, like health, education, housing, and access to markets. It is concerned to see how the delivery of financial services can help clients address other aspects of their lives that keep them trapped in poverty.

 

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