Microloans are small loans advanced to low-income clients to encourage small business ownership. The recipients of microloans are generally individuals with little to no credit history, an unstable job history, and no assets to leverage as collateral. These individuals do not meet any of the standard qualifications for credit worthiness and would not qualify for traditional loans. Microloans are a component of the financial system known as microfinance. The system of microfinance operates under the belief that the poor should have access to high quality financial services, such as loans, savings and insurance.

The origins of microfinance can be traced back centuries starting with the fifteenth century monks who operated community-oriented pawnshops to the visionaries of the nineteenth century European Credit Union. In the past poor people who could not qualify for traditional financing were forced to borrow money from unscrupulous sharks who charged outrageous interest on borrowed funds. Microfinance hopes to offer the poor an opportunity to borrow from legitimate banks and thereby slowly build both credit and traditional wealth. But, detractors have criticized many of the current microfinance programs as still charging the poor very high interest. Although proponents of microfinance tout that the program will single handedly eradicate poverty but critics point out that there is no hard statistics or evidence to back that claim.

The benefits of microfinance are hard to quantify. As a social culture, poor people have found substitutes for money. For example, they tend to barter or exchange livestock for things normally bought with money. This culture makes it difficult for financial analysts to study and determine the impact of small loans and microfinance on the poor.