what is the difference between microeconomics and microfinance?

I cannot understand the difference between the two terms

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    $\begingroup$ Do they have anything in common? Have you looked at Wikipedia ? $\endgroup$ – Michael Greinecker May 27 '18 at 10:18

Kind of a good question, but it's to do with etymology, nitpicking or something. While economics is the allocation of scarce resources and finance is the allocation of scarce resources over time, microeconomics is a study while microfinance is a provision of financial services.

Thus, the 'micro' in microeconomics refers to the scope of study namely that microeconomics studies the behaviors of individuals and firms instead of state issues of growth, inflation, and unemployment.

However, the 'micro' in microfinance refers to the scope of recipients of financial services.


So they’re actually quite easily distinguishable. For the purposes of discussion it’s more important that you understand the framework of microeconomics.

Historically speaking we just had broad economics. Countries were being formed for the first time; and with that came the organization of a science to deal with the interaction of people within a society. Economics literally translates to ‘home-economics’. So it very much had to do with the allocation to scarcity among households, in broad sense, to optimize best for the nation/collective as a whole. Concerns of this nature to this day involve income/GDP, capital accumulations, unemployment, growth, and inflation. Anything that has to do with countries as a ‘whole’ falls under macroeconomics.

So microeconomics was born separately historically in a similar way. While officials in charge of nations were regulating their trades, there were economies being formed between households, merchants, and business’. The optimization of these circles of trade and transaction involves microeconomics. Most consultants and business entrepreneurs are involved in microeconomics.

Finance really took hold almost exclusively in regards to the stock market. Dealing with securities, bonds and markets between companies etc. Even though it very much began autonomously finance is a sub sector of microeconomics. It’s advanced enough to require its own study.

Lastly you brought up micro finance. The reason I answered your question from the standpoint of historical context is because it makes micro-finance more easily explained. Micro-finance is a ‘newer’ term that is usually reserved to supplying consumers living in areas of poor credit markets, any sort of financial service. The countries are usually developing or under subsistence as they’re in a constant state of political turmoil, growth trap, resource constraint, or otherwise that keeps their financial sector in constant disequilibrium. This again is a much newer thing and niche: where people have established methods of introducing credit to these countries where banks aren’t doing it.

  • $\begingroup$ Is my answer wrong? $\endgroup$ – BCLC Jun 13 '20 at 20:37
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    $\begingroup$ Not at all. I think I was trying to underscore the application of micro-finance as largely a corrective approach to diseconomies or institutional breakdowns $\endgroup$ – aisync Jun 18 '20 at 3:56

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