A high-level summary of micro-finance is the issuing of small loans (often just $100-$200) to small groups of 3-4 extremely poor people. The borrower then uses that previously unattainable capital to purchase supplies and equipment to open their own business.
A classic example would be a poor woman in rural Mexico. Her husband works in the fields and they make just barely enough to get by and feed their kids, there's no capital left over even in a good season, and therefore no way to get ahead. If someone were to offer her the opportunity for a micro-loan, she would have a chance to overcome that barrier of extreme poverty.
The lender of the micro-loan would have the woman find another two or three of her friends, and they would form a borrowing group. The borrowing group puts together their aggregate financial needs, and a loan is issued to the group. The purpose of the group is accountability and camaraderie, and receiving additional loans is contingent on every member paying back their loan on time The group will meet together once a week with the lender and pay back a small portion of their loan plus interest over the course of 6 to 8 months.
Upon receiving the loan, the woman would buy a large pot, supplies, ingredients, and a table, and begin making and selling tamales out of the front of her house. She'd make enough to cover her own living expenses and pay off the weekly loan repayment amounts, while improving her own quality of life and gaining confidence.
This extends credit to people who would have never qualified under the existing banking system, and I have story upon story of people's lives who were absolutely changed by what we would consider an absolutely trivial amount.
I don't do this for a living, but I firmly believe in it, and will be putting that belief into practice within the next year.
Some micro-finance organizations include: 1. Grameen Bank - http://www.grameen-info.org/ 2. Kiva - http://kiva.org (started by PayPal alums) 3. MicroPlace - http://www.microplace.com/ (backed by PayPal)
For further reading, see (Microfinance) http://en.wikipedia.org/wiki/Microfinance and (Banker to the Poor) http://www.amazon.com/Banker-Poor-Micro-Lending-Against-Pove...
Go do some good. :)
Overall, it is difficult to be even stay in business let alone profitable due to structure of how interests work at that income level due to most not paying back on their loans.