Working paper / University of Cologne, Development Research Center 2006,3a
Microfinance is that part of the financial sector which comprises formal and informal financial institutions, small and large, that provide small-size financial services to the lower segments of the population. Size of financial services is relative and varies widely by the economic development of a country or area; rigid definitions of size can lead to exclusion and unintended consequences. Microfinance covers a wide array of microfinance institutions (MFIs), ranging from indigenous rotating savings and credit associations (RoSCAs) and financial cooperatives to rural or community banks, non-bank financial institutions (NBFIs) including credit NGOs, development banks as well as commercial banks; they may also comprise moneylenders and private deposit collectors. In contrast to microcredit, microfinance proper refers to a system of financial intermediation between microsavers and microborrowers; it may further include micro-insurance and other financial services such as money transfer. Given the recent popularity of the concept of microfinance, many players have redefined the concept for their own purposes, bringing it close to the point of meaninglessness.