Crowdfunding Versus Microfinancing
Crowdfunding is a neat derivative of microfinancing, which offers financial services to poor or low-income people.
Generally speaking, microfinance advocates believe that by getting financial services into the hands of the impoverished, you can help them to do some amazing things that can actually break the poverty cycle altogether.
Traditional banks can’t handle microfinancing because their overhead required to underwrite a loan precludes those loans from being too small. The same is true of many other financial service offerings. No bank is going to spend the time to underwrite a $50 loan and chase after small bank accounts that might never have more than $100. They just are not built for that.
However, a new breed of microfinancing institutions has evolved and they’ve been set up in a way that they can make microloans and offer microcredits to folks that previously had no access to such services.
Similarly, crowdfunding is circumventing traditional funding mechanisms like bank loans or venture capital. In essence, it says let’s see if we can get a ton of people to chip in a very small amount of money that in aggregate can help somebody to do something.












