Microfinance describes small-scale financial services, such as loans, savings, insurance, remittances and other services. The diversity of microfinance services reflects the heterogeneity of financial needs of individuals, households and enterprises over time. Because of these varied needs and the fungible nature of money, microfinance services are essentially characterized by their size instead of the formality of a client’s enterprise, collateral requirements, methodology, geographical context, originating institution or the use of services for production or consumption. A definition based on size reflects the general assumption that lower income groups and those with restricted access tend to use smaller scale financial services.

MIX recognizes many general definitions of microfinance but for reasons of analysis, employs a functional definition of microfinance. Microfinance services – as opposed to financial services in general – are retail financial services that are relatively small in relation to the income of an individual, household or enterprise. Specifically, the average balance of microfinance services is no greater than 250% of the average income per person (GNI per capita) .