Evolution of microfinance as an important part of global financial system Malkhaz Dzadzua* PhD Candidate in Economics, Kutaisi University,Kutaisi, Georgia *Correspondence to: Malkhaz Dzadzua. PhD Candidate in Economics, Kutaisi Kutaisi, Georgia. E-mail:makho77@yahoo.com Received: 20 January, 2020; Accepted: 27 January, 2020; Published: 03 February, 2020 Copyright: © 2020 Malkhaz Dzadzua. This is an open-access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited. Abstract Microfinance, as an important part of global financial system, has been a subject of great attention especially in the recent decades. This article examines the process of origin and development of modern microfinance industry, its historical context and evolution to the present stage, its impact on the socio-economic life of developing and emerging countries. The paper tries to answer the question: can today’s microfinance be a real and affordable alternative of classical banking system for poor and low-income groups? Keywords: Microfnance, Financial Inclusion, Grameen Bank, Group Solidarity, Social Responsibility, Commercialization, Low- income, Developing Countries Introduction Modern microfnance, as provision of afordable fnancial services for the poor, has been successfully piloted and developed in emerging markets over the past 4 decades. It gained a vast experience of implementing efcient, competitive and long-term fnancial programs for poor communities with a positive socio-economic efect. Microfnance is provision of fnancial services to low income and poor households, especially those who lack an adequate access to formal banking and related services. Its main mandate is to enhance fnancial inclusion at afordable conditions to the disadvantaged and low-income individuals or groups. According to the Basel Committee on Banking Supervision, Microfnance is “provision of fnancial services in limited amounts to low-income persons and small, informal businesses. It is increasingly being ofered by a variety of formal fnancial institutions, including banks and non-banks, either as their core business or part of a diversifed portfolio” Distinctive features of the microfnance business model can be described as follows: Microfnance Institution usually caters to low- income clients, both the underemployed and the entrepreneur with an ofen informal family business. Borrowers are typically concentrated in a limited geographic area, social segment or entrepreneurial undertaking. Loans are usually very small, short term and unsecured with more frequent repayments and higher interest rates than those of conventional banks [1]. Te majority of microfnance consumers are poor, low-income and rural residents, most of which are self-employed in informal sector. Tis category of costumers are naturally characterized by high degree of vulnerability and dependence to external factors which can very easily lead to a sharp decline in the yield and productivity of their micro businesses, resulting in signifcant problems of creditworthiness and bankruptcy. Tus, microfnance institutions are largely afected by specifc internal or external risks, and proceeding from this, they constantly need to be more innovative, creative and fexible in the market in order to adequately and efectively respond to global or local challenges and ofer competitive fnancial services, ensure stable income-generating activities for their customers and sustainability of their businesses. Unlike traditional approaches of managing private business, where the primary goal is proft maximization and satisfying the owners' material interests, classical microfnance has the “Double Bottom Line” approach implying that it must have both - fnancial as well as social objectives [2]. From early XXI we already have a number of “Triple Bottom Line” Microfnance Institutions integrating fnancial, social and environmental objectives in their long-term business strategies. Emergence of Microfnance Microfnance, as part of the fnancial intermediation, has paved a long way from its initial stage to the modern business model. Its primary forms have been existed in many countries as an efective and reliable alternative of other existing lending practices. Formal or semi-formal credit and saving groups that efectively collected small funds and then lend it to other members have been around since ancient times across the world (ROSCAs, ASCAs, Self- Help Groups) From the oldest forms of self-organized fnancial groups worldwide most notable are "Chit funds" in India, "Gui" in China, "Arisan" in Indonesia, "Paluwagan" in the Philippines, “Tontines” in West Africa.In the Middle Ages the number of pawn shops was rapidly increasing in some European Countries (Especially in Italy), which signifcantly diminish other fnancial intermediaries and became a viable alternative for small borrowers. In 1515 Pope Leon X authorized pawn shops to ofcially charge interest on their loans, which was prohibited before for religious reasons. Te Catholic Church supported foundation of pawn shops as an alternative to usurious moneylenders. Afer this, the pawn shops spread throughout the urban areas in Europe and expanded later in colonial countries. One of the most well organized forms of oldest formal microfnance institution was the "Irish Loan Fund" system, initiated in XVIII by B u s i n e s s a n d E c o n o m i c s J o u r n a l ISSN: 2151-6219 Business and Economics Journal Dzadzua M, Bus Econ J 2020, 11:1 Research Article Open Access Bus Econ J, an open access journal ISSN: 2151-6219 Volume 11 • Issue 1 • 1000395