Microfinance refers to financial services for lower income customers who do not have access to adequate formal financial services, and therefore rely heavily on informal providers. The most important specific target group is micro and small enterprises. Microfinance not only includes loans but also comprises savings facilities, training and other services required by these customers.

The peculiarities that make microfinance operations different from other financial products are not limited to the fact that these operations are 'micro' or small in volume. There are three more characteristic features of such operations, which have important consequences for the lending technology:

• The clients' income generating activities, including small-scale business, cannot be clearly separated from their families and households.
• The clients cannot provide reliable and sufficient information on their entrepreneurial activities.
• Given the small size of each operation, microfinance can only be profitable if substantial economics of scale are reached.