The goal of a microfinance project is to create income and employment in poor communities through the development of local microenterprises and, in the process, increase the financial well-being of borrowers, their families, and the community at large.

Microentrepreneurs start rural and urban businesses on a very small scale, usually with no outside assistance. They keep operating costs low by using handmade or second-hand equipment and family labour. Businesses often operate from within the home, a further savings. Unfortunately, those who start and run these businesses have virtually no access to capital beyond sources from family, friends, or professional moneylenders. Moreover, these businesses are largely isolated from one another. Many could build into substantial enterprises, if they had access to productive resources.

Assisting microenterprises, the businesses of the self-employed, has proved a highly successful strategy for creating new income in local communities.

Microenterprise programmes are effective for a number of reasons:

• Microenterprises are simple to operate;

• They use locally available skills;

• They are labour-intensive and create significant employment;

• They improve the income of the working poor, especially poor women;

• They can serve as a basis for community participation and empowerment of clients;

• They can pay market interest rates charged on loans, which can help a project cover costs and reach more people.