Microfinance has blown up in recent years. Particularly popular in emerging economies, microfinance lenders make small loans available to underserved (especially rural) borrowers. But why has this fairly new banking segment become so big?

One of the reasons microfinance–and the firms and funds that back it–is so popular is a basic principle of borrowing. Because micro-loans are often just a few hundred dollars at most, borrowers generally have suitable collateral to back the loan. Livestock is a common security for loans; backing lending with goods of real (if small) value is just a sound business model.

Microfinance is popular in Africa and India. How can you get involved? Firms from mutual funds to venture capitalists are getting in on the action, so ask your financial advisor is he or she has any good tips on microfinance investment.

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