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Isabel Sainz-Fernández, Begoña Torre-Olmo and Carlos López-Gutiérrez

Microfinance arises in response to the demand for funding by the informal economic sector, given the limitations of the formal and informal financial systems, contributing to the development of countries. This chapter analyses the contribution of the microfinance sector to economic development and the repercussions originating from this contribution. Beginning with the limitations of the traditional financial systems and analysing the characteristics of the microfinance sector, the chapter describes the types of microfinance institutions. All of these institutions have two different kinds of objectives, social and financial, which are studied in this chapter. Finally, given that in the literature the relationship between the two sectors (microfinance and financial) is not clear, we present the main conclusions of the studies that find a positive or negative relationship between them.