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> Posted by Anita Gardeva
Word of the Week – Appropriate Collections Practices: A Client Protection Principle that states that the debt collection practicesof providers will be neither abusive nor coercive.
Appropriate collections practices, while they may be firm, treat clients with dignity even when they fail to fulfill their obligation and do not deprive them of the ability to earn their livelihood.
Spotlight Fact: Data from Beyond Codes—the research arm of the Smart Campaign—has shown that appropriate collections practices is one of the strongest principles in MFIs that were assessed during the project. There is also evidence that this principle is stronger in regulated institutions, but at the same time, business conduct norms are more important than regulation when it comes to institutionalizing the principle.
Suggested Resources:
- “Best Practices in Collections Strategies,” ACCION InSight (November, 2008)
- “Collections with Dignity at FinComún”
For more information, sign up for updates from the Financial Inclusion 2020 campaign.
> Posted by Anita Gardeva
Word of the week – AML/CFT: An acronym for Anti-Money Laundering/Combating the Financing of Terrorism; policies to detect and reduce money laudering and terrorism financing.
The term usually refers to the international standards on AML/CFT set up by the Financial Action Task Force (FATF), an inter-governmental body. While each country can choose how to adapt these international standards, in most countries financial institutions are required to apply certain know your customer (KYC) regulations to all customers, strengthen internal controls, and watch for suspicious transactions. These regulations, while important, can sometimes create barriers to financial inclusion.
Spotlight Fact: AML/CFT regulation can make it especially difficult and costly to provide specific payment services to low-income people. The Center for Global Development’s Task force on Access to Financial Services cites Indonesia, Pakistan, Kenya, South Africa, and Mexico as examples where, prior to reforms, AML/CFT controls had unintended negative impacts on access and use of financial services by low-income people.
Suggested Resource: AML/CFT: Strengthening Financial Inclusion and Integrity
For more financial inclusion terms, visit the Center’s interactive Financial Inclusion Glossary.
For more information, sign up for updates from the Financial Inclusion 2020 campaign.
Flickr credit: borman818
> Posted by Anita Gardeva
Word of the Week – Agent Banking: Also known as correspondent banking, this is a model for delivering financial services whereby a bank partners with a retail agent (or correspondent) in order to extend financial services in locations for which bank branches would be uneconomical.
Agents can be both banking (small MFIs or credit unions) and non-banking correspondents (such as post offices, gas stations, and corner grocers). Agent banking is a delivery channel that holds high potential for closing the location gap.
Spotlight Fact: One of the most successful examples of agent banking took place in Brazil with Banco Bradesco and the national postal system. Between 2002 and 2008, this model helped transform nearly 6,000 post offices into banking branches which in five years would reach more than 5.5 million customers (the majority of which were previously unbanked) with a wide range of financial services (including credit, savings, and transfers). In its first five years of operation this model also ensured that the 1,590 Brazilian municipalities which previously were not served by banks now all have a banking outlet within their boundaries. (From Microfinance for Bankers and Investors by Elisabeth Rhyne.)
Suggested Resources:
- Banking Agents 101
- “Banking through Networks of Retail Agents” (Ignacio Mas and Hannah Sieked, CGAP, May 2008)
For more financial inclusion terms, visit the Center’s interactive Financial Inclusion Glossary.
For more information, sign up for updates from the Financial Inclusion 2020 campaign.
Flickr Credit: takomabibelot
> Posted by Anita Gardeva
Word of the Week – Affordability: Describes products for which the price is in line with the client’s ability to pay for them. A characteristic of quality financial services.
Affordability is considered one of the greatest barriers to access to financial services. Affordability pertains to the costs associated with using services, including both interest rates and fees. The term emphasizes a threshold (e.g. an “affordable” loan interest rate ), but as a broad concept it relates to products that provide a positive value for service. It is often thought of only in terms of credit, but as a broader concept (value for service) it also applies to savings, insurance and payments. For example, if the rate of return on savings is lower than inflation, the savings account does not retain the real value of the client’s savings.
Spotlight Fact: We have found that in Mexico the average real annual net return on savings accounts is -3.5% for popular sector savings accounts and -2.8% for commercial savings accounts, making it impractical for the average Mexican to deposit money in most banks.
Affordability has become a center-stage topic for the microfinance industry in recent times in the form of an ongoing debate about microfinance interest rates. We have provided some resources below that explore this complex topic:
Suggested Resources:
- Are Microfinance Interest Rates Excessive? (CGAP, February 2009)
- Banks Making Big Profits from Tiny Loans (Neil MacFarquhar, New York Times, April 13, 2010)
- Why are Microfinance Interest Rates so High? (Elisabeth Rhyne, Huffington Post, May 28, 2010)
For more financial inclusion terms, visit the Center’s interactive Financial Inclusion Glossary.
For more information, sign up for updates from the Financial Inclusion 2020 campaign.
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> Posted by Anita Gardeva
The Center recently published its Financial Inclusion Glossary. Each week we will feature a glossary term as the Word of the Week. The glossary is a collaborative effort so if you have any suggestions on words to include, please let us know! We hope you enjoy this series.
Word of the Week – Access:
The availability to a given person of affordable and appropriate financial services. Access is contingent on the supply of financial services. When an individual has access to a financial service, a provider offers the service in a manner that gives the client the option to easily use it when she decides.
Access is often seen as the goal of financial inclusion; however access is difficult to measure because availability cannot be directly observed. Usage is often used as a proxy, although it can underestimate the number of households that have access because it fails to capture those who currently have access to a financial service but are not using it. Although access and usage are often used interchangeably, they are not the same; usage results when there is both access to a financial services and a demand to use it. Usage is not necessarily the goal of financial inclusion.
Spotlight Fact: Did you know that estimates state that more than 2 billion people around the world lack access to financial services?
Suggested Resource: A good resource with more information on access to financial services around the world is CGAP’s Financial Access 2009, a report that surveys financial regulators in 139 countries to highlight important financial access data and insights. A 2010 version is scheduled to be released this fall.
For more financial inclusion terms, visit the Center’s interactive Financial Inclusion Glossary.
For more information, sign up for updates from the Financial Inclusion 2020 campaign.
Flickr Credit: Jsome1
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