B240 – Microfinance Theory

and Practice

Part 3

FINANCIAL SERVICES AND DELIVERY

CHANNELS

1
AOU-B240-Microfinance
 Chapter 8

Savings Services
Joanna Ledgerwood

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The poor need savings services that allow them to:

(1) deposit small, variable amounts frequently and

(2) access larger sums in the short, medium, or long term (Rutherford 2009).

Like everyone else, they demand a portfolio of savings products that offer differing terms of
access and generate differing returns

In some cases, poor people need highly liquid services, for example, to cope with emergencies
or to take advantage of an investment opportunity.

For other purposes, they prefer illiquid options to protect their savings and instill discipline

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 SAVINGS PRODUCTS

Deposit products available from regulated providers include current accounts, savings accounts,
contractual savings accounts, time deposits, and long term savings or micropensions

Current Accounts: Also called checking accounts or demand or site deposits

are fully liquid accountts in which the depositor may deposit and withdraw any amount at any
time with no advance commitment or notice.

may be set up with automatic transfers, for example, to pay bills each month or to transfer to
another account.

Customers often must deposit a minimum amount to open a current account and maintain a
minimum balance to keep it active.

Generally current accounts do not pay any interest but charge clients fees either on a monthly
or a transaction basis or both.

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Passbook Savings Accounts: is an account that is fully liquid (that is, money can be freely
deposited and withdrawn by the account holder) or semiliquid (that is, the number of
transactions are restricted).

Passbook savings generally offer clients interest on the funds deposited, although many
providers also charge transaction and other fees associated with services.

Contractual savings accounts: also called commitment

savings or target savings, require clients to commit to regularly deposit a fixed amount for a
specified period to reach a predetermined date or amount.

Clients are prohibited from or penalized for withdrawals before the maturity date.

AOU-B240-Microfinance 5
Time deposits: also called fixed deposits, term deposits, or certificates of deposit—are savings
products in which a client makes a one-time deposit that cannot be withdrawn for a specified
period or term without penalty.

Financial institutions offer a range of possible terms and usually pay a higher interest rate on
time deposits than on passbook or contractual savings accounts

Long-Term Savings and Micropensions:

Poor people are vulnerable because low and irregular incomes combined with insufficient
financial tools often leave them with little to no savings as they age.

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Pensions: Although not highly prevalent among poor communities, pensions are a type of
savings product that provides a regular flow of payments from retirement to death.

Sometimes these payments transfer to a surviving spouse. Pensions are primarily provided by
employers. Benefits accumulate based on earning level and years of service;

Pension funds can be internally managed by the company or outsourced to an investment

manager and can be fully funded by the employer (defined benefit pension) or a defined
contribution pension funded by both the employer and employee,

micropensions provide a form of income security, enabling voluntary savings for old age and
aimed at lower income populations. They require fixed contributions over time, which are
invested in term savings accounts, group term savings accounts, or physical assets such as
property, land, and livestock, to create a consistent flow of income when the micropension
holder can no longer generate income.

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Long-Term Contractual Savings: LTCS products work much like other contractual savings
products whereby clients make small regular deposits over time and then withdraw either the
lump-sum amount or, like micropensions described above, with an annuity allowing a regular
stream of payments over time after a certain age

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 CHAPTER 9

Credit
Joanna Ledgerwood and Julie Earne

AOU-B240-Microfinance 9
Credit products offer clients the ability to borrow money in exchange for an agreement to repay
the funds with interest and/or fees at some future point(s) in time.
‫أو رسوم في وقت ما في‬/‫وتقدم منتجات االئتمان للعمالء القدرة على اقتراض المال في مقابل اتفاق على سداد األموال بفائدة و‬
‫المستقبل‬.
Credit products range from working capital loans, emergency and consumption loans, to leasing
products and housing loans.
‫ إلى منتجات اإليجار وقروض‬، ‫ وقروض الطوارئ واالستهالك‬، ‫وتتراوح المنتجات االئتمانية من قروض رأس المال المتداول‬
‫اإلسكان‬.

LOAN PRICING‫ت سعير ا لقرض‬

Revenue on loans is, for the most part, generated from interest and fees, including in some
cases penalties for late payments.
‫ بما في ذلك في بعض الحاالت الغرامات المفروضة على‬،‫وتتولد اإليرادات من القروض في معظمها من الفوائد والرسوم‬
‫المدفوعات المتأخرة‬.

The price of loans is normally stated as a nominal interest rate a percentage of the loan amount.
Interest rates can be flexible and change depending on market conditions
‫ يمكن أن تكون أسعار الفائدة مرنة وتتغير تبعا‬.‫وعادة ما يذكر سعر القروض كسعر فائدة اسمي بنسبة مئوية من مبلغ القرض‬
‫لظروف السوق‬

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Calculating Interest Rates: Interest rates can be stated using a declining balance method or a
flat-rate method.
‫ يمكن ذكر أسعار الفائدة باستخدام طريقة التوازن المتناقصة أو طريقة السعر الثابت‬:‫حساب أسعار الفائدة‬.
The declining balance calculates interest as a percentage of the amount outstanding during the
loan term. As the amount of principal declines with each periodic payment, the interest is
calculated only on the remaining amount owed.
‫ وبما أن مبلغ األصل ينخفض مع كل دفعة‬.‫يحسب الرصيد المتناقص الفائدة كنسبة مئوية من المبلغ المستحق خالل فترة القرض‬
‫ فإن الفائدة ال تحسب إال على المبلغ المتبقي المستحق‬،‫دورية‬.
The flat-rate method calculates interest based on the original disbursed amount (sometimes net
of fees).
)‫والواقع أن طريقة السعر الثابت تحسب الفائدة استناداً إلى المبلغ األصلي الذي تم صرفه (في بعض األحيان صافي الرسوم‬.
Although many providers use the flat-rate method because it is simple to calculate, it results in
higher effective rates of interest (and thus higher costs for the borrower) for the same stated
rate compared to interest calculated on a declining balance.
‫ إال أنها تؤدي إلى معدالت‬، ‫على الرغم من أن العديد من مقدمي الخدمة يستخدمون طريقة السعر الثابت ألنه من السهل حسابها‬
‫فائدة فعالة أعلى (وبالتالي تكاليف أعلى للمقترض) لنفس السعر المعلن مقارنة بالفائدة المحسوبة على الرصيد المتناقص‬.

11
 1000-83.33 =
916.67-83.33 =

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AOU-B240-Microfinance 13
AOU-B240-Microfinance 14
Fees and Other Service Charges:
In addition to charging interest, many providers also charge a fee or service charge when
disbursing loans.
‫ يتقاضى العديد من مقدمي الخدمة أيضًا رسو ًما أو رسوم خدمة عند صرف القروض‬، ‫باإلضافة إلى تحصيل الفائدة‬.
Fees are generally charged as a percentage of the initial loan amount and are collected upfront
rather than over the term of the loan
‫وتُفرض الرسوم عموما ً كنسبة مئوية من مبلغ القرض األولي وتحصل مقدما ً وليس على فترة القرض‬

LOAN PRODUCTS‫منتجاتا لقروض‬

Loans are beginning to be made available for different purposes, including the following:
‫ بما في ذلك ما يلي‬، ‫وقد بدأ توفير القروض ألغراض مختلفة‬:

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Cash Flow Management:‫لنقدي‬ff‫لتدفقا‬ff‫إدارة ا‬:
Working capital loans for microenterprises are provided to either start or expand enterprises
with the assumption that additional business revenue will be used to repay both principle and
interest at predetermined intervals.
‫وتقدم قروض رأس المال المتداول للمشاريع البالغة الصغر إما لبدء المشاريع أو لتوسيع نطاقها على افتراض أن إيرادات‬
‫األعمال التجارية اإلضافية ستستخدم لسداد كل من المبدأ والفوائد على فترات محددة سلفا‬.
Lines of credit are often used for working capital and/or household cash flow management.
Rather than receiving a set amount of a loan that is then repaid, lines of credit allow the
borrower to access credit as needed up to a certain amount.
‫ وبدال من الحصول على مبلغ‬.‫أو التدفقات النقدية لألسر المعيشية‬/‫وكثيرا ما تستخدم خطوط االئتمان إلدارة رأس المال العامل و‬
‫ تسمح خطوط االئتمان للمقترض بالحصول على االئتمان حسب الحاجة إلى مبلغ معين‬، ‫محدد من القرض يسدد بعد ذلك‬.
Salary loans are made to clients with a regular source of income through salaried employment.
The borrower’s salary provides collateral for the loan, and repayments are usually debited
directly through the employer at the time of payroll.
ً ‫ ويوفر مرتب المقترض ضمانا ً إضافيا‬.‫وتقدم قروض المرتبات للعمالء الذين لهم مصدر دخل منتظم عن طريق العمل بأجر‬
‫ وعادة ما يخصم السداد مباشرة عن طريق صاحب العمل وقت تقديم كشوف المرتبات‬، ‫للقرض‬.

Education loans are used to finance primary or secondary education.

‫وتستخدم قروض التعليم لتمويل التعليم االبتدائي أو الثانوي‬.

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Risk Management:‫لمخاطر‬ff‫إدارة ا‬:
Emergency loans provide funds on short notice for unanticipated events. Banks sometimes
make emergency loans to clients with whom they have long-term relationships, often by adding
to existing loans.
ً ‫ تقدم البنوك أحيانًا قرو‬.‫توفر قروض الطوارئ األموال في غضون مهلة قصيرة لألحداث غير المتوقعة‬
‫ضا طارئة للعمالء الذين‬
‫ وغالبًا ما يتم ذلك عن طريق اإلضافة إلى القروض الحالية‬، ‫تربطهم بهم عالقات طويلة األمد‬.
Top-up loans: Many providers, both formal and informal, offer “top-up” loans where the
outstanding loan amount can be increased if the amount requested is relatively small.
‫ قروضا ً "عليا" حيث يمكن زيادة مبلغ القرض‬، ‫ الرسمية وغير الرسمية‬، ‫ يقدم العديد من مقدمي القروض‬:‫القروض العليا‬
ً ‫المستحق إذا كان المبلغ المطلوب صغيراً نسبيا‬.

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Asset Building and Productive Investment:‫إلنتاجي‬ff‫الستثمار ا‬ff‫ألصولوا‬ff‫ناء ا‬fff‫ب‬:
Fixed asset loans are used to finance a specific asset such as a sewing machine or motorcycle;
generally the assumption is the asset will contribute to an income-generating activity or
enterprise, increasing the borrower’s cash flow and, thus, capacity for debt.
‫ االفتراض هو أن األصل‬، ‫تستخدم قروض األصول الثابتة لتمويل أصل معين مثل ماكينة الخياطة أو دراجة نارية ؛ بشكل عام‬
‫ وبالتالي القدرة على الدين‬، ‫ مما يزيد من التدفق النقدي للمقترض‬، ‫سوف يساهم في نشاط أو مؤسسة مدرة للدخل‬.
Leasing:‫ت أجير‬:
is a form of financing that allows businesses or individuals to make use of equipment and
other assets without having to own them or purchase them outright at the beginning.
‫هو شكل من أشكال التمويل يسمح لألعمال التجارية أو لألفراد باستخدام المعدات واألصول األخرى دون الحاجة إلى‬
‫امتالكها أو شرائها بالكامل في البداية‬.
The user (the lessee) pays specific regular amounts to the owner (the lessor).
)‫يدفع المستخدم (المستأجر) مبالغ منتظمة محددة للمالك (المؤجر‬.
Broadly there are two different types of lease agreements
Financial leases are leases in which the risks and rewards associated with ownership of the leased equipment
are substantially transferred from the lessor to the lessee
Operating leases are structured so the responsibility associated with ownership of the leased asset rests with
the lessor who owns the asset.
‫ هناك نوعان مختلفان من اتفاقيات اإليجارعقود اإليجار التمويلي هي عقود إيجار يتم فيها تحويل المخاطر والمكافآت المرتبطة بملكية‬، ‫بشكل عام‬
‫المعدات المؤجرة بشكل كبير من المؤجر إلى المستأجريتم تنظيم عقود اإليجار التشغيلي بحيث تقع المسؤولية المرتبطة بملكية األصل المؤجر على‬
‫عاتق المؤجر الذي يمتلك األصل‬.

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Housing loans differ from traditional mortgages in that mortgage finance refers to long term
loans to purchase real estate where the property acts as collateral.
‫وتختلف القروض السكنية عن الرهون العقارية التقليدية في أن تمويل الرهن العقاري يشير إلى القروض الطويلة األجل لشراء‬
‫العقارات عندما تكون الممتلكات بمثابة ضمان‬.
Mortgages are generally offered by commercial banks and mortgage companies at market
interest rates.
‫وعادة ما تقدم المصارف التجارية وشركات الرهن العقاري القروض العقارية بأسعار فائدة السوق‬.
Housing microfinance is defined as “loans to low-income people for renovation or expansion of
an existing home, construction of a new home, land acquisition and basic infrastructure.”
، ‫ويعرف التمويل البالغ الصغر لإلسكان بأنه "القروض المقدمة إلى ذوي الدخل المنخفض من أجل تجديد أو توسيع مسكن قائم‬
‫ والبنية التحتية األساسية‬، ‫ وحيازة األراضي‬، ‫"وبناء مسكن جديد‬.
Some institutional providers have begun, most notably over the past 5 to 10 years, to develop
housing loans for low-income populations.
‫ في تطوير قروض اإلسكان‬،‫ الماضية‬10 ‫ إلى‬5 ‫ وعلى األخص خالل السنوات‬،‫وقد بدأ بعض مقدمي الخدمات المؤسسية‬
‫للسكان ذوي الدخل المنخفض‬.
These products combine elements of both conventional mortgage finance and microcredit.
Housing microfinance provides relatively larger loans (up to US$5,000) and longer terms (one to
eight years) and may require compulsory savings
‫ ويوفر التمويل البالغ الصغر لإلسكان‬.‫تجمع هذه المنتجات بين عناصر تمويل الرهن العقاري التقليدي واالئتمان الصغير‬
‫ دوالر من دوالرات الواليات المتحدة) وأجال أطول (من سنة إلى ثماني سنوات) وقد‬5 000 ‫قروضا أكبر نسبيا (تصل إلى‬
‫يتطلب ذلك مدخرات إلزامية‬

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 CHAPTER 10

Agricultural Finance
‫التمويل الزراعي‬
Calvin Miller

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Rural finance refers to financial services provided
‫يشير التمويل الريفي إلى الخدمات المالية المقدمة‬
in rural areas for agricultural as well as nonagricultural
‫في المناطق الريفية للزراعة وكذلك غير الزراعية‬.
purposes.‫ض‬f‫غرا‬f‫أ‬
Agricultural finance, primarily a subset of rural finance, is dedicated to financing agriculture-
related activities such as inputs, production, storage, processing, and marketing of goods.
‫ مخصص لتمويل األنشطة المتعلقة بالزراعة مثل‬، ‫ وهو في األساس مجموعة فرعية من التمويل الريفي‬، ‫التمويل الزراعي‬
‫المدخالت واإلنتاج والتخزين والمعالجة وتسويق السلع‬.
In addition to funding for working capital, agricultural finance also funds investment and
infrastructure, such as irrigation systems, storage facilities, and machinery.
‫ مثل أنظمة الري ومرافق‬،‫ضا االستثمار والبنية التحتية‬
ً ‫ يمول التمويل الزراعي أي‬،‫باإلضافة إلى تمويل رأس المال المتداول‬
‫التخزين واآلالت‬.
It includes a variety of products including credit, savings, insurance, and transfer payments.
‫ ودفعات التحويل‬، ‫ والتأمين‬، ‫ واالدخار‬، ‫وتشمل مجموعة متنوعة من المنتجات بما في ذلك االئتمان‬.

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 The Challenge of Agricultural Credit‫ت حديا الئتمانا لزراعي‬

Farmers often live in areas that are hard to reach with traditional financial services.
‫وكثيرا ما يعيش المزارعون في مناطق يصعب الوصول إليها بالخدمات المالية التقليدية‬.
In addition, they face climatic and price risks, seasonal demand for products, and fluctuating
labor and capital.
‫ وتقلب العمالة ورأس المال‬، ‫ والطلب الموسمي على المنتجات‬، ‫ فإنها تواجه مخاطر مناخية وأسعار‬، ‫وباإلضافة إلى ذلك‬.
Many of these risks and challenges such as droughts, floods, pests, or diseases are beyond the
control of farmers; within a region, they are often subject to the same weather and climate risks,
making it hard for financial service providers to hedge them.
‫ أو األمراض تخرج عن سيطرة المزارعين ؛‬، ‫ واآلفات‬، ‫ والفيضانات‬، ‫إن العديد من هذه المخاطر والتحديات مثل الجفاف‬
‫ مما يجعل من الصعب على مقدمي الخدمات المالية‬، ‫ كثيرا ما يتعرضون لنفس مخاطر الطقس والمناخ‬، ‫وفي منطقة ما‬
‫تحوطهم‬.

AOU-B240-Microfinance 22
Agricultural credit requires adjustments that differentiate it from a typical microenterprise
loan. Because cash outflows for inputs, capital, and some labor occur at the beginning of the
season and cash inflows occur primarily at harvest time, agricultural loans often require the loan
principal to be paid at maturity rather than throughout the loan period.
‫ وألن التدفقات النقدية إلى الخارج من‬.‫ويتطلب االئتمان الزراعي تعديالت تفرق بينه وبين قرض نموذجي للمشاريع الصغيرة‬
‫ وألن التدفقات النقدية إلى الداخل تحدث في المقام‬، ‫ وبعض العمالة تحدث في بداية الموسم‬، ‫ ورأس المال‬، ‫أجل المدخالت‬
‫ فإن القروض الزراعية كثيراً ما تتطلب دفع أصل القرض عند االستحقاق وليس طوال فترة القرض‬، ‫األول في وقت الحصاد‬.
In agriculture, land is often used as collateral. However, there are frequent problems with land
title and property rights for smallholder families, especially women-headed households that
often do not have title to land (in some cultures women are not allowed, either formally or
informally, to own land). Furthermore, small loans rarely justify the legal costs to process a land
claim.
‫ هناك مشاكل متكررة فيما يتعلق بملكية األراضي وحقوق الملكية‬، ‫ ومع ذلك‬.‫ غالبًا ما تستخدم األرض كضمان‬، ‫في الزراعة‬
‫ وخاصة األسر التي تعيلها نساء والتي ال تملك في كثير من األحيان صكوك ملكية األرض‬، ‫ألسر أصحاب الحيازات الصغيرة‬
‫ نادراً ما تبرر‬، ‫ عالوة على ذلك‬.)‫ بامتالك األرض‬، ‫ سواء بشكل رسمي أو غير رسمي‬، ‫(في بعض الثقافات ال يُسمح للمرأة‬
‫القروض الصغيرة التكاليف القانونية لمعالجة مطالبة األرض‬.
Movable assets such as livestock and equipment are also fairly high risk, as farmers often have
no proof of ownership or insurance coverage for them.
‫ حيث ال يوجد لدى المزارعين في‬، ‫ تنطوي على مخاطر كبيرة إلى حد ما‬، ‫ مثل الماشية والمعدات‬، ‫كما أن األصول المنقولة‬
‫كثير من األحيان أي دليل على ملكيتهم أو تغطيتهم بالتأمين‬.

AOU-B240-Microfinance 23
 Agricultural Value Chain Finance‫ت مويل س لسلة ا لقيمة ا لزراعية‬

Agricultural lending requires risk assessment well beyond the agricultural borrower to include an
analysis of market dynamics that determine the fluctuations of prices and production in the
agriculture sector.
‫يتطلب اإلقراض الزراعي تقيي ًما للمخاطر يتجاوز نطاق االقتراض الزراعي ليشمل تحلياًل لديناميكيات السوق التي تحدد تقلبات‬
‫األسعار واإلنتاج في قطاع الزراعة‬.
This is because the ability of farmers to produce, sell their products, and profit from their
farming activities is influenced by the economic performance of individuals or businesses from
whom they buy and sell.
‫وذلك ألن قدرة المزارعين على إنتاج وبيع منتجاتهم والربح من أنشطتهم الزراعية تتأثر باألداء االقتصادي لألفراد أو الشركات‬
‫التي يشترون ويبيعون منها‬.
Farmers’ cash flow is linked to the competitiveness and reliability of their suppliers, buyers, and
service providers.
‫يرتبط التدفق النقدي للمزارعين بالقدرة التنافسية والموثوقية لمورديهم ومشتريهم ومقدمي الخدمات‬.
The total set of interactions between all of these actors to produce a specific agricultural
product is often referred to as a value chain.
‫غالبًا ما يشار إلى المجموعة اإلجمالية للتفاعالت بين جميع هذه الجهات الفاعلة إلنتاج منتج زراعي معين باسم سلسلة القيمة‬.

AOU-B240-Microfinance 24
 Trade Finance‫ت مويل ا لتجارة‬
Trade and product-related finance refers to credit provided by traders, input suppliers, and
agribusiness processors and buyers. Trade finance has traditionally been the most prevalent
form of agricultural financing, especially for small producers.
‫وتشير التجارة والتمويل المتصل بالمنتجات إلى االئتمان المقدم من التجار وموردي المدخالت ومجهزي األعمال التجارية‬
‫ وال سيما لصغار المنتجين‬، ‫ وكان تمويل التجارة تقليديا أكثر أشكال التمويل الزراعي شيوعا‬.‫الزراعية والمشترين‬.
These farmer-trader or buyer-trader relationships play a critical role in connecting farmers to
markets. They provide farmers with funds for inputs, harvest, or other needs such as family
consumption and emergencies.
‫ وهي توفر للمزارعين‬.‫تلعب عالقات المزارعين والتجار أو المشترين والتجار دورًا مه ًما في ربط المزارعين باألسواق‬
‫األموال الالزمة للمدخالت أو الحصاد أو االحتياجات األخرى مثل االستهالك األسري وحاالت الطوارئ‬.
In more organized value chains, a trader or buyer may give an advance to a producer so the
producer can purchase inputs and cover costs until harvest. The trader then deducts the
advance (with interest as agreed) from the purchase price.
‫ يجوز للتاجر أو المشتري أن يقدم سلفة إلى منتج لكي يتمكن المنتج من شراء المدخالت‬، ‫وفي سالسل القيمة األكثر تنظيما‬
‫ ثم يخصم التاجر السلفة (بفائدة على النحو المتفق عليه) من سعر الشراء‬.‫وتغطية التكاليف حتى الحصاد‬.

AOU-B240-Microfinance 25
For financial institutions, especially MFIs and government banks, it is often assumed that
financing must be provided directly to the micro and small agricultural producers and
households.
‫ يفترض في كثير من األحيان أن‬،‫ وال سيما مؤسسات التمويل البالغ الصغر والمصارف الحكومية‬،‫وبالنسبة للمؤسسات المالية‬
‫التمويل يجب أن يقدم مباشرة إلى صغار وصغار المنتجين الزراعيين واألسر المعيشية‬.
This may or may not be the most feasible way to
finance agricultural activities due to the costs and
risks involved.
‫قد تكون هذه الطريقة األكثر جدوى لذلك وقد ال تكون كذلكتمويل األنشطة الزراعية بسبب التكاليف والمخاطر التي تنطوي‬
‫عليها‬.
Hence, financing institutions also need to consider alternative ways to finance suppliers, traders,
and agribusiness buyers who can advance the supplies or funds needed by those producers.
‫ يتعين على مؤسسات التمويل أيضا ً أن تنظر في سبل بديلة لتمويل الموردين والتجار ومشتري األعمال التجارية‬، ‫ومن ثم‬
‫الزراعية الذين يمكنهم تقديم اإلمدادات أو األموال التي يحتاجها هؤالء المنتجون‬.

AOU-B240-Microfinance 26
 Bill Discounting and Factoring‫خصم ا لكمبيا التوا لتخصيم‬
Input suppliers that sell on credit as well as agribusinesses or producer organizations that sell
products on consignment or on delayed payment (for example, 60 days) often struggle with
liquidity.
‫غالبًا ما يعاني موردو المدخالت الذين يبيعون باالئتمان وكذلك األعمال التجارية الزراعية أو منظمات المنتجين التي تبيع‬
‫ يو ًما) من السيولة‬60 ، ‫المنتجات على شحنة أو بتأخير السداد (على سبيل المثال‬.
This limits the amount of sales they can make on credit, which, in turn, limits the ability of
smallholder farmers to obtain inputs on credit to be paid upon delivery of their harvest.
‫ مما يحد بدوره من قدرة صغار المزارعين على الحصول‬، ‫وهذا يحد من حجم المبيعات التي يمكن أن تقوم بها على االئتمان‬
‫على مدخالت ائتمانية تدفع عند تسليم محصولهم‬.
Bill discounting and factoring can help to improve cash flow without requiring additional
collateral (which is often not available).
‫يمكن أن يساعد خصم الفواتير والتخصيم في تحسين التدفق النقدي دون الحاجة إلى ضمانات إضافية (والتي غالبًا ما تكون غير‬
)‫متوفرة‬.

AOU-B240-Microfinance 27
Bill discounting and factoring are both financial transactions whereby a business or producer
organization sells its accounts receivables (that is, invoices) at a discount.
‫يعد خصم الفواتير والتخصيم معامالت مالية حيث تبيع منظمة تجارية أو منتجة حساباتها المستحقة القبض (أي الفواتير) بسعر‬
‫مخفض‬.
Both are forms of credit, which allows a business to obtain immediate cash without waiting for
invoices to be paid.
‫ والذي يسمح لألعمال التجارية بالحصول على نقود فورية دون انتظار سداد الفواتير‬، ‫كالهما شكل من أشكال االئتمان‬.
Factoring is a special form of bill discounting that works through specialized factoring agencies.
Buyers and wholesalers or input suppliers sell their invoices at a discount to the factoring
agency, which provides a credit advance (for example, 80 percent of invoice value) to the
business or producer organization. The agency collects the receivables when due and makes a
final settlement payment to the business, minus a factor discount (administrative fee and
interest).
‫ يبيع المشترون وتجار الجملة أو‬.‫التخصيم هو شكل خاص من أشكال خصم الفواتير يتم من خالل وكاالت التخصيم المتخصصة‬
‫ في المائة من قيمة‬80 ، ‫ التي تقدم سلفة ائتمانية (على سبيل المثال‬، ‫موردو المدخالت فواتيرهم بخصم إلى وكالة التخصيم‬
‫ تقوم الوكالة بتحصيل المستحقات عند استحقاقها وتقوم بدفع تسوية نهائية للشركة‬.‫الفاتورة) إلى الشركة أو منظمة المنتج‬
)‫مطرو ًحا منها خصم العوامل (الرسوم اإلدارية والفوائد‬.

AOU-B240-Microfinance 28
 Warehouse Receipts Systems‫أنظمة إيصا التا لمستودعات‬

Warehouse receipt systems (sometimes called warrants or warrantage) are a form of inventory
credit
‫نظام إيصاالت المستودعات (يسمى أحيانًا أوامر أو مذكرات) هو شكل من أشكال ائتمان المخزون‬
Warehouse receipts involve a tripartite agreement between (a) producers who borrow using
stored produce as collateral; (b) local financial institutions, which lend to producers or
organizations; and (c) a warehouse manager, who provides storage services.
)‫تتضمن إيصاالت المستودعات اتفاقية ثالثية بين (أ) المنتجين الذين يقترضون باستخدام المنتجات المخزنة كضمان ؛ (ب‬
‫المؤسسات المالية المحلية التي تقرض المنتجين أو المنظمات ؛ و (ج) مدير المستودع الذي يقدم خدمات التخزين‬.
The stored produce is then sold when prices are generally highest and potential revenue can be
maximized.
‫ثم تباع المنتجات المخزونة عندما تكون األسعار هي األعلى عموما ويمكن زيادة اإليرادات المحتملة إلى أقصى حد‬.
Farmers or other participants in the value chain receive a receipt from the warehouse stating
that they have deposited goods of a particular quantity, quality, and grade, which they then
pledge as collateral to access a loan from a third-party financial service provider, such as a
cooperative or an MFI
‫يحصل المزارعون أو غيرهم من المشاركين في سلسلة القيمة على إيصال من المستودع يفيد بأنهم أودعوا بضائع ذات كمية‬
‫ مثل‬، ‫ ثم يتعهدون بذلك كضمان إضافي للحصول على قرض من طرف ثالث مقدم للخدمات المالية‬، ‫ونوعية ورتبة معينة‬
‫تعاونية أو مؤسسة مالية صغيرة‬.

AOU-B240-Microfinance 29
 Agricultural Leasing‫ا لتأجير ا لزراعي‬
A financial lease, also called a lease-purchase agreement, is a viable loan alternative for
financing equipment and durable assets.
‫ بديالً قابالً للتطبيق لقرض لتمويل المعدات‬، ‫ضا اتفاقية اإليجار والشراء‬
ً ‫ الذي يُطلق عليه أي‬، ‫يعتبر عقد اإليجار التمويلي‬
‫واألصول المعمرة‬.
Leasing uses the agricultural equipment and machinery acquired as its own collateral, thus
providing an alternative for clients who do not have the traditional collateral needed to
purchase directly.
‫ وبالتالي يوفر بديالً للعمالء الذين ليس‬، ‫يستخدم التأجير المعدات واآلالت الزراعية التي تم الحصول عليها كضمان خاص به‬
‫لديهم الضمانات التقليدية الالزمة للشراء مباشرة‬.

AOU-B240-Microfinance 30
 Addressing Client Risk through Financial Services
‫معالجة مخاطر العميل من خالل الخدمات المالية‬
Agricultural Insurance‫ا لتأمينا لزراعي‬
Agricultural insurance products can be classified‫عي‬f‫لزرا‬ff‫لتأمينا‬ff‫صنيفمنتجاتا‬fff‫مكنت‬ff‫ي‬
as four principal types:‫ع رئيسية‬f‫نوا‬f‫ة أ‬f‫أربع‬f‫ك‬:
• Damage-based insurance. Indemnity payments are triggered by the occurrence of a specific
type of damaging event, such as hail, fire, or death of animals. These products tend to be
used when there is a low correlation between events occurring within a given area and
payment is subject to the value of the loss.
• ‫ مثل البَ َرد أو الحريق‬، ‫ يتم تفعيل مدفوعات التعويض من خالل حدوث نوع معين من األحداث الضارة‬.‫تأمين ضد التلف‬
‫ تميل هذه المنتجات إلى االستخدام عندما يكون هناك ارتباط منخفض بين األحداث التي تحدث في‬.‫أو موت الحيوانات‬
‫منطقة معينة ويكون الدفع خاضعًا لقيمة الخسارة‬.

AOU-B240-Microfinance 31
• Yield-based insurance. Indemnity payments are made when the client’s yield is below a
predefined level, independent of the damage that is measured after the defined loss event.
It is suited to perils where individual attribution to the crop loss is difficult to measure.
• ‫ بغض‬، ‫ يتم سداد مدفوعات التعويض عندما يكون عائد العميل أقل من المستوى المحدد مسبقًا‬.‫تأمين على أساس العائد‬
‫ وهي مناسبة للمخاطر حيث يصعب قياس نسبة الخسارة‬.‫النظر عن الضرر الذي يتم قياسه بعد حدث الخسارة المحدد‬
‫الفردية للمحاصيل‬.
• Crop-revenue insurance. The timing and amount of indemnity payment are defined based
on a predefined combination of yield and commodity prices, set according to historical
norms in a subarea.
• ‫ يتم تحديد توقيت ومبلغ التعويض بنا ًء على مجموعة محددة مسبقًا من أسعار المحصول‬.‫تأمين عائدات المحاصيل‬
‫ والتي يتم تحديدها وفقًا للمعايير التاريخية في منطقة فرعية‬، ‫والسلع‬.

AOU-B240-Microfinance 32
• Index-based insurance. A predefined index calculated based on historical meteorological
and production data. Use of an index avoids the need to verify the value of losses, and its
deviation from a specified level defines the value of the indemnity payment. Examples of
indexes include (a) a specified minimum temperature for a minimum period of time (for
frost); (b) a specified amount of rainfall in a certain period of time (for excess or lack of
rain); and (c) a certain wind speed (for hurricanes).
• ‫ يتجنب‬.‫ مؤشر محدد مسبقًا محسوب على أساس بيانات األرصاد الجوية واإلنتاج التاريخية‬.‫التأمين على أساس المؤشر‬
‫ تتضمن أمثلة‬.‫ ويحدد انحرافه عن مستوى معين قيمة التعويض‬، ‫استخدام المؤشر الحاجة إلى التحقق من قيمة الخسائر‬
‫الفهارس (أ) درجة حرارة دنيا محددة لفترة زمنية دنيا (للصقيع) ؛ (ب) كمية محددة من األمطار في فترة زمنية معينة‬
)‫(لزيادة أو نقص المطر) ؛ و (ج) سرعة رياح معينة (لألعاصير‬.

33
If a proper index can be determined, delivery costs can be significantly reduced because
payment for damage does not have to be verified but is automatic according to the index.
‫ يمكن تخفيض تكاليف التسليم تخفيضا كبيرا ألنه ال يتعين التحقق من دفع ثمن الضرر بل يكون‬، ‫وإذا أمكن تحديد مؤشر مناسب‬
‫تلقائيا وفقا للمؤشر‬.

The use of an index also avoids the risk of moral hazard. This is because neither the insurer nor
the client can influence the index measurements, usually collected by a third party such as a
government ministry.
‫ ويرجع ذلك إلى أنه ال يمكن للمؤمن عليه وال للعميل التأثير على قياسات‬.‫كما أن استخدام المؤشر يتجنب خطر الخطر األخالقي‬
‫ التي يجمعها عادة طرف ثالث مثل وزارة حكومية‬، ‫المؤشر‬.

34
 Forward Contracts‫ا لعقود ا آلجلة‬
Forward contracts commit the issuer to sell a product with delivery at a future date, such as at
harvest. The sale price is fixed at the time of the contract.
‫ ويحدد سعر البيع وقت إبرام‬.‫ مثل وقت الحصاد‬، ‫وتلزم العقود اآلجلة الجهة المصدرة ببيع منتج مع تسليمه في تاريخ الحق‬
‫العقد‬.
Forward contracts are useful for smallholder farmers, traders, and agroenterprises to mitigate or
“hedge” the price risk, which helps to mitigate the risk for lenders, since future income is more
secure.
‫ مما يساعد‬، ‫والعقود اآلجلة مفيدة لصغار المزارعين والتجار والشركات الزراعية للتخفيف أو "التحوط" من مخاطر األسعار‬
ً ‫ ألن الدخل في المستقبل أكثر أمنا‬، ‫على تخفيف المخاطر على المقرضين‬.
Forward contracts can also be used as collateral for loans
‫ويمكن أيضا استخدام العقود اآلجلة كضمان للقروض‬

AOU-B240-Microfinance 35
 Guarantee Funds‫أموا لا لضمان‬
In some countries, governments, donors, or commercial companies offer guarantee funds for
agriculture or for specific sectors or target groups of farmers or agroenterprises.
‫ تقدم الحكومات أو الجهات المانحة أو الشركات التجارية صناديق ضمان للزراعة أو لقطاعات محددة أو‬، ‫وفي بعض البلدان‬
‫لمجموعات مستهدفة من المزارعين أو المشاريع الزراعية‬.
These are meant to reduce the risk of lending. A typical example is a fund that guarantees
approximately 50 percent of the loan in the event of default for a fee of 3 to 5 percent annually.
‫ في المائة من‬50 ‫ ومن األمثلة النموذجية على ذلك الصندوق الذي يضمن نحو‬.‫والغرض من ذلك هو الحد من مخاطر اإلقراض‬
‫ في المائة سنويا‬5‫ و‬3 ‫القرض في حالة التخلف عن سداد رسوم تتراوح بين‬.

Lowering the risk gives the lender an incentive to lend to new or risky sectors and to lend more.
‫خفض المخاطر يعطي المقرض حافزا إلقراض قطاعات جديدة أو محفوفة بالمخاطر وإلقراض المزيد‬.

AOU-B240-Microfinance 36
CHAPTER 11

Insurance

Craig Churchill

AOU-B240-Microfinance 37
 The Need for Microinsurance‫ا لحاجة إ لىا لتأمينا لصغير‬

Stakeholders in microfinance often focus their attention and resources on the productive side of
finance, particularly micro and small enterprise lending.
‫ وال سيما‬،‫وغالبا ما يركز أصحاب المصلحة في التمويل البالغ الصغر اهتمامهم ومواردهم على الجانب اإلنتاجي للتمويل‬
‫اإلقراض من المشاريع البالغة الصغر والصغيرة‬.
Yet any development gains achieved— such as increased incomes, assets accumulated, and jobs
created—can quickly be lost if the entrepreneur’s business or household experiences a peril.

Consequently, productive investments must be balanced with similar attention and resources on
promoting protection.

Like other financial products, insurance programs for the poor have to balance three competing
objectives: (1) provide coverage to meet the needs of the target population, (2) minimize
operating costs for the insurer, and (3) minimize the price (including transaction costs) for clients
to enhance affordability and accessibility.

AOU-B240-Microfinance 38
 Product Options
When designing insurance products, various options need to be considered. Will the insurance
be offered to groups or individuals? Will it be mandatory or voluntary? What are the coverage
terms and prices? How will premiums be collected? And how will benefits be paid?

Voluntary or Mandatory Insurance: To be demand driven and client focused, one would expect
that voluntary coverage would be the most appropriate. Yet in the field of insurance—
microinsurance in particular where affordability is so important—a strong case can be made for
mandatory coverage because it performs the following:

AOU-B240-Microfinance 39
Enables insurers to reach scale, which increases the accuracy of predicting future claims

Reduces costs due to higher volumes and lower enrollment, administration, collection, and
underwriting costs

Improves claims ratios because it brings in lower-risk individuals, which is known as positive
selection, who may otherwise opt out or postpone their participation

Reduces vulnerability to staff fraud because it reduces the chance for agents to sell policies
and keep the premiums.

AOU-B240-Microfinance 40
Microinsurance providers can combine the advantages of mandatory and voluntary coverage by
making insurance mandatory for all members of an existing group (which minimizes adverse
selection), while providing two or three options to choose from.

Terms of Coverage Many microinsurance products have terms of 12 months or less.

Short-term policies are generally preferred by insurers because long term insurance involves
longer-term commitments and thus higher risk—it is easier to predict the likelihood of an
insured event in the next year than in the next 10 years.

For the insured, however, the opposite is true: The advantage of long-term coverage is that he or
she will have protection over the long term without having to reapply for insurance every year.

Renewable terms combine the advantages of short- and long-term coverage. The insured are
guaranteed to receive continued coverage, yet the insurer can adjust the pricing, up or down for
each renewal term, depending on its experience

AOU-B240-Microfinance 41
Premium Payment Mechanisms Methods for paying premiums must minimize administrative
costs for the insurer and transaction costs for clients. In general, the best time to collect
premiums is when policyholders have cash, for example, at harvest time, or when they receive a
loan or a government cash transfer.

To streamline premium payments, a common strategy is to “piggyback” the premium on top of

another financial transaction. (linking the premium payment to a loan is a good example of this
strategy)

Eligibility: When designing an insurance product, it is also

necessary to determine who is eligible to be covered. Generally it is better to have more people
covered by one product, and therefore a family benefit approach, which may include spouses,
dependents, and even parents (=> similar to group insurance adavantages).

AOU-B240-Microfinance 42
Claims: The best opportunity to demonstrate the value of insurance is to pay claims. When the
benefits are paid is equally as important as how they are paid. Some products pay benefits in
phases rather than in one lump sum to cover ongoing expenses.

AOU-B240-Microfinance 43
 INSURANCE PRODUCTS

Insurance is designed to be risk specific. Microinsurance products can be broadly classified into
five primary categories: life, health, property, agriculture, and composite.

Life:
Life insurance involves a contract whereby the insurer promises to pay a designated beneficiary
a sum of money upon the death of the insured person.

In certain instances, other events such as critical illness or permanent disability may also trigger
payment.

Life insurance includes a range of variations such as credit life, term life, and funeral insurance as
well as coverage that accumulates value such as endowment policies and annuities.

AOU-B240-Microfinance 44
Credit life insurance is life insurance linked to a loan.

With term life the benefit is payable only if the insured dies during a specified period.

Funeral insurance is essentially a term life product with a cash or in-kind benefit such as the
funeral service itself.

Accumulating value products, such as endowment plans and life annuities, include life
insurance and a savings element over a longer period of time, Endowment policies combine
elements of a contractual savings product and insurance.
An endowment policy accumulates value over a period, typically 5, 10, or 15 years, through regular premium
payments. If the policyholder survives the term, he or she receives a lump sum. If the policyholder dies during
the term, his or her beneficiaries receive a payment called the sum assured.

AOU-B240-Microfinance 45
 With life annuities, the policyholder pays regular premiums until a specified date, usually a retirement date,
after which he or she receives regular benefit payments until death.

Health insurance
The most basic version, critical illness coverage, is essentially a life insurance policy that pays
benefits early, that is, before the person dies, if the policyholder is diagnosed with a specified
critical or terminal illness.

Hospital cash pays the insured a daily rate for the number of days in the hospital, as well as
sometimes an additional payment for transportation.

Inpatient coverage pays for the actual costs of being in the hospital and is linked directly to the
medical costs incurred.

Pharmaceutical coverage pays for medicine either on its own or as an additional benefit to
other health insurance.

Outpatient coverage pays for outpatient visits to the doctor or clinic.

AOU-B240-Microfinance 46
Property insurance provides coverage for tangible
assets such as housing and contents as well as
machinery and other equipment.

Agriculture insurance : Agriculture insurance generally covers crop failure and the death of
livestock.

However, it is wrought with challenges, particularly moral hazard (for example, having insurance
may give the farmer an incentive not to follow appropriate farming practices), covariant risk (for
example, a natural disaster affects many of an insurer’s policyholders at the same time),

AOU-B240-Microfinance 47
an innovation to overcome these problems is index-based insurance whereby policyholders in a
particular geographic area receive a benefit regardless of whether or not they experience a loss
if a predetermined measurable outcome occurs, such as too much or too little rain,
temperatures above or below certain thresholds, or excess wind speeds.

The big advantage of an index approach is that it helps to eliminate fraud and moral hazard and
minimizes the costs of claims processing.

A key limitation, however, known as basis risk, is that farmers may experience a loss even though
the index is not triggered, or alternatively do not experience a loss and still receive a benefit

AOU-B240-Microfinance 48
Composite Insurance: Offered in some low-income markets, composite insurance combines
multiple benefits into one integrated insurance policy. Benefits can come from two or more
different insurance companies and are bundled together into one comprehensive product.

AOU-B240-Microfinance 49
 CHAPTER 12

Payment Services and Delivery

Channels
Joyce Lehman and Joanna Ledgerwood

AOU-B240-Microfinance 50
 Payment Services
Payment services or electronic transfers can occur between two people, between a person and a
business (or vice versa), or from the government to a person (or vice versa).

Transfers can be made using a negotiable instrument such as a check, a direct debit through a
bank account, an electronic funds transfer (EFT), a POS device, an ATM, or a mobile phone.

The terms commonly used are P2P for a person-to-person transfer, P2B or B2P for transfers
between a person and a business, and G2P for transfers from the government to a person.

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 Delivery Channels
Transactions can occur over a range of channels either in person at a branch or with technology-
enabled alternatives.

Branches: In a branch, a teller or customer service officer conducts transactions, including cash-
in, cashout services. These brick and mortar branches are the most expensive channel to
operate.

Field Officers: As part of their outreach strategy, financial service providers often send staff to
the field to meet clients (either individually or in groups) close to their place of business or
residence.

The model has proven resilient in many countries but is still relatively inefficient and expensive
compared to some of the newer channels being developed.

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Automated Teller Machines: ATMs perform many of the same functions as a cashier or teller at a
branch, but customers carry out transactions using the ATM and a card.

ATMs are generally located in high-traffic areas close to clients and function 24 hours a day,
providing convenient access points for basic transactions, including withdrawals, transfers, and
bill payments. In some cases they accept deposits as well.

•Electronic Payment Cards: Clients access ATMs through electronic payment cards using a password or personal
identification number (PIN) that allows personal information to be verified and transactions carried out.

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•Cards can be debit cards, where the amount available for withdrawal depends on the amount of accessible funds in
the corresponding bank account, or

•credit cards, with a maximum amount of credit available to the holder, which, if used, is repaid at a later date with
interest, or

•Prepaid cards differ from traditional debit cards in that they are preloaded with value (and can be reloaded) and
typically do not require a bank account.

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Payment Terminals: Payment terminals are retail cash-in access points located in local shops and
markets or in stand alone kiosks along streets.

Customers use payment terminals to pay bills for services such as electricity, Internet, and water.

Point-of-Sale Devices: POS devices are small special-purpose portable computing devices that
facilitate payments, deposits, withdrawals, money transfers, account balances, and printing of
mini-statements.

Unlike an ATM, transactions on a POS device are performed in conjunction with an agent or
retailer or a mobile field officer who supports the successful completion of the transaction,
provides cash-in, cash out services (if applicable), and provides a printed receipt with the client’s
card once the transaction is complete.

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Mobile Branches: Mobile branches operate either as mobile ATMs loaded onto a van or, within
the van, as a minibranch staffed by a teller equipped with a small laptop, mobile phone, or POS
device linked to the provider’s core banking system and often by a security guard.

These models are designed to enable transactions in sparsely populated rural areas where
distances make travel inconvenient and costly and there are no alternative access points

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Mobile Phones: Similar to POS devices, mobile phones can facilitate basic transactions:
withdrawals, deposits, payments (through agents), and account inquiries.

The mobile phone does not have to be connected to a bank account. If the customer has a bank
account, then the mobile phone becomes the device for conducting transactions in and out of
the account.

If the customer is unbanked, then the mobile phone simply provides electronic money services
or “mobile payments.”

A mobile phone can also become a “mobile wallet” for storing monetary value or “e-money”
(referred to as stored value), for depositing additional value by giving cash to a cash-in, cash-out
agent, or for transferring funds to another individual or a business.

The mobile wallet has the same value to the customer as a low-balance bank account.

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Mobile phones can potentially replace a bank card and a POS device. GSM phones hold account
and transaction information on each customer’s SIM card.

Clients can apply for a SIM card directly from an MNO retail outlet or from an issuing bank
working in partnership with an MNO, which ensures that some form of identification is provided
to satisfy the know your customer/antimoney- laundering regulations for bank accounts.

The customer’s PIN and bank account number are recorded on the SIM card or in the phone’s
memory, and in this way the phone acts as a virtual card.

Once recorded, the customer can move funds to and from the account using a menu on the
mobile phone as defined by the MNO. Cash-in, cash-out services still need to be performed in a
branch, at an ATM, or with an agent.

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MNOs offer three types of transaction messaging protocols to perform financial transactions
over GSM mobile networks:

1. Short messaging service (SMS). The client sends a specially coded SMS message to the
intended recipient. This is usually referred to as texting or a text message.

2. Unstructured supplementary service data (USSD). The client begins the session by typing in
an MNO-defined code on the phone and pressing “send.” A transaction menu prompts the
client to choose the desired action. USSD messages create a real-time connection, which
makes them more responsive than SMS messages, and do not store the customer’s data,
unlike the SMS protocol.

3. Custom-built application. The provider uses a purpose-built application software program

on the SIM card or in the phone’s internal memory to enable the user to launch the
financial transaction menu directly from the handset.

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Internet Banking (e-Banking): Financial service providers around the world allow clients to
transact on their account via the Internet.

To do so, the client must have some form of Internet-connected access device, such as a
personal computer, tablet or Smartphone.

Transacting on a smartphone provides a higher-quality experience than transacting on a regular

mobile phone, but smartphones are significantly more expensive.

In addition, the data plans that enable Internet connectivity are a “premium service” for which
the client pays more. For poor women and men in rural areas, the benefits of a smartphone may
be moot

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 Agent Networks
Financial services can be delivered to a majority of poor households only if the service providers
— banks and MNOs—use retail distribution channels to get closer to where the poor live at a
fraction of the cost of traditional banking.

These agents who convert cash to electronic money (e-money) or convert e-money to cash are
the human face of all agent banking systems.

An effective agent is well trained, trusted by customers, strategically and conveniently located,
and properly incentivized to follow procedures, keep sufficient float on hand, and serve
customers. Banks typically select larger and more established retail stores, whereas mobile
networks are more inclined to use smaller retail outlets such as roadside stands, “mom and pop”
shops, or kiosks

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 CHAPTER 13

Fintech in Microfinance
Different sources (published articles and reports)

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 Introduction to Fintech

• Fintech is an abbreviation of financial technology.

• Definition: "fintech is a new financial industry that applies innovative technology to

improve financial operations” (Schueffel, 2016).

The Global Fintech market (deloitte, 2020):

• Global Fintech revenues in 2018 were about €92 billion and are expected to grow to more
than €188 billion in 2024.

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The Fintech markets in the Asia-Pacific (APAC) and Americas regions are
currently the largest, with both having around 40% of the global market
share. The Europe, Middle East and Africa (EMEA) region is significantly
smaller, with around 20% of the total market share. The Fintech market
in the APAC region is projected to be the fastest growing.

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 Types of FinTechs

• In order to understand how FinTechs help innovate the business model of financial services
firms, we will explain their general purpose and functioning in this section.

• three technologies have been selected based on their maturity in developed markets and
on their relevance to the microfinance sector.

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1. Internet and mobile banking

• This section was covered in the previous chapters.

2. Cloud Computing

• Allows companies to access a shared pool of computer resources – such as servers, storage,
applications and services – over the Internet on a self-service and pay-for-use basis (Mell &
Grance, 2011).

• These cloud-based applications are run in distant data centers owned and operated by a
service provider in such a way that the hardware and software do not have to be installed,
maintained or updated in-house.

• This delivery model is also known as ‘Software as a Service’ (SaaS) and avoids important
upfront capital investment in IT solutions.

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3. Data Analytics
Every day, organizations collect data from their business environment, processes and
interactions.

While a business can do little with raw and unstructured data, it can identify meaningful
patterns and behaviors once the data has been extracted, transformed, organized and modelled
by specialized computer systems (Informatica, 2017).

This process of gaining significant insights from data is commonly called ‘data analytics’ and
helps businesses seize opportunities which might have remained otherwise hidden among the
mass of information (e.g. new customer needs, product development opportunity).

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 The effect of Fintech on Microfinance business models

1. Cost structure

• the previously mentioned technologies have considerably impacted the costs of running a
physical infrastructure or a ‘branch’, the costs of storing sensitive data and finally on the IT
investment, development and maintenance costs

1.1. Physical network costs

• The era of mobile devices is slowly shifting customer preferences towards ubiquitous
banking services which is reducing high touch points between clients and branch
employees.

• Moreover, a high number of customer-facing transactions are being replaced by immediate,

automated digital functions (du Toit & Burns, 2016; Marcu & Mathias, 2013)

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• Studies have shown that MFIs are investing less
in physical branches. Hence, by cutting out a part
of their intermediaries, financial institutions
avoid substantial costs such as property rentals
and payroll (Hanne, 2013).

• Besides lowering operational costs, FinTechs

boost the performance of the remaining
branches by reassigning branch employees to
core and higher-value activities, specifically.
• “The employees of banking institutions will change from dividing their time between administrative and sales
tasks to focusing on the relationship with the customer and designing and marketing high-value products. This
should finally lead to an increase in new customer business, a stronger bond with the banking institution and a
reduced incidence of account migration.” (Cuesta, et al., 2015, p.8).”

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• All in all, the adoption of innovative technologies enables to reduce the overall transaction
costs as shown in the below Figure.

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1.2. IT infrastructure and storage costs
• Before the emergence of ICT, financial organizations used to pay rental fees for a storage
facility as well as wages to the individuals taking care of the property, the security and
maintenance of their documents (WWW Metrics, sd).

• Today, cloud computing enables financial institutions to significantly reduce their IT

expenses by ‘delocalizing the IT infrastructure’ outside of the company and reduce excess
staff.
• First, a large up-front capital investment in IT infrastructure is avoided and turned into smaller,
continuous operational costs via a pay-for-use pricing model (Sriram, 2011).
• This also allows smaller firms to affordably access services and computing-intensive business analytics
that were unavailable before (Marston, et al., 2011).
• At last, given that the maintenance of applications is managed by the cloud provider, employees can
focus on core activities such as the development of relevant customer products and services (Anderson,
2014).

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2. Speed of process and delivery of services
• Thanks to technological advancements, IT solutions have progressively improved the
efficiency of highly manual, repetitive and paper-intensive back-office processes, which are
slow, expensive, generate errors and inconsistent results (Dias, Scopa, & van Bommel,
2012).

• Aside from back-end operations, FinTechs have recently enabled financial services
companies to focus on the automation of front-end operations as well (Cuesta, et al., 2015).

• Indeed, mobile and online banking digitize and speed up normally customer-facing
operations, such as data collection (Dias, Scopa, & van Bommel, 2012).

• The cloud also makes the system accessible from web browsers anywhere at any time,
allowing employees to work outside of the office (Banking Tech, 2014).

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3. Revenue structure
• The adoption of FinTechs leads the way for new revenue streams.

• First, a diversified, customized, simplified and integrated range of financial products and
services improve the user experience and consequently the customer retention.

• Second, digital channels enable customer acquisition through increased geographical

access and visibility on the Internet.

• Since retaining the right customer can be five to twenty-five times cheaper than acquiring a
new one – depending on the industry and the study – both strategies can be considered as
new revenue opportunities (Gallo, 2014).

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3.1. Customer retention
• every online transaction made via the web or smartphones is readily digitized and can be
processed through powerful analytical tools to gain insights on each individual’s behavior,
preferences and needs (Gutierrez, 2014).

• a financial service firm can use this personal data to increase the share of wallet of existing
customers by cross-selling, up-selling or bundling products

• Based on the consumption behavior of each customer, relevant and personalized financial
services can be suggested proactively or in real-time via automated decision-making
(Barbovich, 2016; Deloitte Development LLC, 2010).

• Furthermore, customer information can be used to enhance the overall user experience
with highly customized products and services per customer rather than one-size-fit-all
offers across all segments (Dietz, et al., 2016).

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3.2. Customer acquisition
• FinTechs also allow financial services firms to enlarge their existing customer base in several
ways.

• First, since mobile banking gives access to financial services independently of place and
time, customers beyond geographical scope can be reached (Deloitte Development LLC,
2010).
• Thanks to the Omni channel strategy, most transactions can be performed online which increases the
accessibility of financial services to customers for whom frequent trips to the branch are highly time-
consuming and cost-demanding.

• Second, digital channels facilitate the presence of the financial firm on social networks and
on the web, which increases the firm’s visibility hence the potential outreach (Kanchan,
2012).

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3.3. Customer Relationship
• As online and mobile banking provide customers self-service capabilities, their relationship
with their bank shifts from a highly face-to-face interaction to a remote, virtual contact.

• According to the ING International Mobile Banking survey (2016) , out of the average 47%
of European consumers using mobile banking, 71% claim it improves their money
management and increases control over their finances.

• The combination of real-time data analytics with potentially unlimited computing power
has also enabled the development of products and services that help customers make
better decisions without the human intervention (Banking Tech, 2014).
• This can range from personal financial management tools notifying budget imbalances or spending
patterns that could lead to over-indebtedness, to product comparison and recommendation based on
the customer needs, or even to robo-advisors providing guidance or deciding on the customers’ behalf
about their investment portfolio (Financial Services User Group (FSUG), 2016).

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4. Risk Management

• Big Data analytics have an essential role in the improvement of the risk management of
financial institutions. Indeed, with the increased regulatory reporting and compliance
requirements, financial firms need strong capabilities to conduct data-intensive activities,
such as real-time scenario analyses (Sarrocco, et al., 2016).

• As such, Big Data and advanced analytics provide companies a timely access to useful
insights which enables them to make better-informed decisions, that is, based on evidence
rather than intuition (Sarrocco, et al., 2016).

• Specifically, financial firms increasingly apply data analytics to credit scoring models in
order to better estimate a customer’s default risk (Buytendijk, 2013).

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• A large amount of customer data is collected from external data sources and is analyzed via
automated processes to assess a customer’s creditworthiness (Gutierrez, 2014).

• Based on up to 10,000 data points ranging from traditional (e.g. credit and payment
history) to more innovative sources (e.g. social networks, e-commerce), credit and loan
decisions are taken in a few seconds thanks to powerful computing solutions capable of
handling such a breadth of data (Gutierrez, 2014).

• Back-testing is another possible application of big data analytics in the financial service
sector, which consists in the validation of predictive models or investment strategies using
massive amounts of historical data (Gutierrez, 2014).

• Last, hidden insights, such as fraud or other risky behaviors, can be uncovered by studying
various relationships in the data (Buytendijk, 2013).

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