Microfinance is a sustainable financial service provided by credit institutions to low-income groups and vulnerable groups (mainly low-income customers and self-employed), and it is also an important means to help the poor. Microfinance originated in Bangladesh in 1970s, and it is a credit method to meet the credit needs of the poor. The loan target is limited to the poor, the amount is very small, and no mortgage is needed. Since its establishment, microfinance has been warmly welcomed by the poor and spread to many developing countries in Asia, Africa and Latin America, becoming a very effective way to help the poor. The development and evolution of micro-credit has gone through four stages: from farmers' micro-credit in the 1970s to micro-credit in the 1980s, and then to micro-credit aimed at pursuing sustainable commercial development and loan coverage in the 1990s. At present, diversified microfinance is gradually being integrated into the financial system.

The rapid development of micro-credit reflects the reflection on the problems existing in the past financial poverty alleviation methods. In the past, the poor were regarded as having no credit. Considering the high operating cost and loan risk, commercial banks were generally reluctant to provide loan services to low-income groups. In order to make up for this lack of financial services for the poor, the governments of developing countries and international development agencies have helped to establish special policy-oriented financial institutions, through which a large number of low-interest loans for agriculture and poverty alleviation have been issued. Due to the problems in guiding ideology, policies, project execution institutions, and the lack of due attention to the absorption of deposits, the poverty alleviation effect of such financial institutions is often unsatisfactory.

The emergence of micro-credit has changed the original model of subsidized credit from the government to poor households, and introduced a market mechanism, which is operated by financial institutions according to the market. Compared with the traditional government subsidized loans, microfinance has shown great advantages: First, the repayment rate is high. The average repayment rate of successful microfinance projects is above 90%; Second, the household registration rate is high. Micro-loans can guarantee that 100% of loans will eventually reach farmers; Third, the loan targets are vulnerable groups, which is a supplement and improvement to the existing financial service system; Fourth, market-oriented operation; Fifth, pay attention to services for poor women.

As an effective means of poverty alleviation, microfinance has been practiced in more and more countries in the world. Thousands of microfinance projects are trying to push financial services to the poor who could not get such services in the past. There are many microfinance models in the world, among which Grameen Bank in Bangladesh, BRI-UD Bank in Indonesia and BANCOSOL Bank in Bolivia are the most famous. Institutions engaged in microfinance include formal financial institutions, non-governmental organizations, community organizations, government agencies and international organizations. From the perspective of developing financial markets, low-income groups and micro-enterprises provide huge potential markets for expanding financial services. If we can find better ways to reduce operating costs and financial risks, microfinance institutions can extend financial services to some poor people and maintain their normal operations and profits. From the development of micro-enterprises, micro-credit can provide some initial funds for the development of enterprises and long-term financial services for the development of enterprises. From the perspective of poverty alleviation, deposit service can help the poor to increase their savings, thus overcoming the shortage of funds and emergencies that may be encountered in their lives. When the basic livelihood of poor people is guaranteed to a certain extent, loan service can help them develop production and finally get rid of poverty.