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What Is a Microfinance NGO?

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  • Written By: Mark Wollacott
  • Edited By: Lauren Fritsky
  • Last Modified Date: 16 September 2014
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Microfinance NGO is a Non-Governmental Organization (NGO) that provides poor clients with a small-scale lending program. Each microfinance NGO has a particular project or target group in mind for each micro-lending project. Such groups may offer grants of money or may offer small loans with low rates of interest. The difference depends on the nature of the NGO, its source of funding and its outlook.

There are a number of reasons for creating a microfinance NGO. They can be created for both social and political reasons. They might be orientated towards bringing about certain targets, might be founded with the long-term in mind or might be created for one particular project or crisis. NGOs sit wedged between fully independent businesses driven by profit and government departments. Microfinance NGOs are funded in part by government grants, by international organization grants and by private donors or fundraising events.

An example of where a microfinance NGO might have been set up for a particular project is the 2005 tsunami in Indonesia. For example, such an organization might have been set up to provide locals with grants or low interest credit, so they can rebuild their destroyed houses. The project would automatically wind up when the loans have been repaid or the project has been finished.

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NGOs that are set up with a particular cause in mind do not have a set time frame, but do have a particular objective in mind. These NGOs can be both domestically and internationally-focused. For example, a microfinance NGO might be set up in order to fund organizations and groups fighting illness in Africa — the objective would be the eradication of the illness. When successful, the NGO then either winds up or moves the fight to another target area.

Long-term NGOs often juggle a number of ongoing projects. For example, there might be an NGO that gives loans or credit to poor people trying to start a business or to people who want to build their own house. These NGOs also might be designed to respond to crises across the globe and move from disaster to disaster offering money and assistance to those affected.

Each NGO’s activities will be regulated in a number of ways. First, each NGO must abide by international law and the laws of the countries where they are based and where they operate. Beyond this, the microfinance NGO will run itself according to its founding principles and objectives.

Each NGO may have different rules for determining who has access to its funding and the nature of the funding itself. For example, the NGOs will have differing rules for the application process, for monitoring how the money is spent and how it is repaid. Many NGOs will attach rules and caveats to their funding regimens to ensure the recipient of the funding keeps to his word.

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