Microfinance plays a significant role in ADB's overarching goal to reduce poverty in Asia and the Pacific. ADB believes that providing access to microfinance can prove to be an effective way of reaching the poor - and improving their lives.

Microfinance is the provision of a broad range of financial services such as, deposits, loans, payment services, money transfers and insurance, to poor and low-income households and their microenterprises.It also shares the concept that low-income individuals are capable of lifting themselves out of poverty if given access to financial services.

Three types of sources of microfinance

• formal institutions - i.e. rural banks and cooperatives
• semiformal institutions - i.e. nongovernment organizations
• informal sources - i.e. money lenders and shopkeepers

Institutional microfinance includes microfinance services provided by both formal and semiformal institutions. Microfinance institutions are institutions whose major business is the provision of microfinance services.

ADB and microfinance

About 90% of the 180 million poor households in the region still lack access to institutional financial services. Most formal financial institutions deny the poor financial services because of

• perceived high risks
• high costs involved in small transactions
• the poor's inability to provide marketable collateral for loans

ADB, through its Microfinance Development Strategy, aims to ensure permanent access to institutional financial services for the region's poor people and their small businesses.

To achieve this objective, ADB focuses on:

• creating a microfinance-friendly policy environment
• developing financial infrastructure
• building viable retail institutions
• supporting pro-poor innovations
• supporting social intermediation

Providing the poor with improved facilities to save and to have better access to credit and insurance helps them manage risk, build assets, increase income, and enjoy a better life.