Micro finance is an individual based concept to furnish financial services to low-income individuals who have no access to finance in a conventional way. Macro finance is a whole economy based concept, which is not framed for any particular group, to grow the economy at a national level. A micro finance is a narrow concept and focuses on the need of an individual. A micro finance is provided by micro finance companies, self-help groups, and non-government organizations. A macro finance involves a large entity like governments, big corporation, banks, and some big private lenders.
A macro finance is for a specific time period like 2 years or a 3 year. Microfinance starts by educating borrowers about the basics of how money and credit work, how to budget and manage debt, and how to best utilize cash flows. Following this, the borrowers are provided access to the capital. Default risk is mitigated by pooling borrowers in groups of, say, five or 10 people , which improves repayment rates due to peer pressure. Pooling also builds individual credit rating and enables assistance among group members.
Macrofinance works on a larger scale aimed at widespread benefits involving multiple entities. A state may offer multi-year tax benefits to businesses, which in turn, setup factories employing the local population. The government benefits because there is long-term overall development and because the locally employed population is now paying taxes.
Financing is assisted by banks or through public-private partnerships. Both microfinance and macrofinance have shown to be effective. While macrofinance initiatives ensure overall economic development at the national or regional levels, microfinance has enabled financial self-reliance for individuals. Both need to be balanced with the right policies and measures to achieve the desired goals.
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Popular Courses. Table of Contents Expand. Key Differences. Key Takeaways Microfinance and macrofinance both deal with funding initiatives; their difference lies in the scope and size of their efforts. Microfinance enables financial self-reliance for individuals, providing them with money and education. Macrofinance deals with broader projects that affect entire societies or communities, aiming to improve economies as a whole.
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