managing risk.pdf

Managing Risk and Creating Value with Microfinance115GlossaryAccess to finance—Access to finance is the ease with which businesses and households are able to qualify for andget credit and other financial services in a timely and reliable manner and at an affordable cost. For example, accessto finance by poor people can be affected directly by the level of collateral and documentation required for loans, bythe formal presentation of a business use of the funds, and by minimum balance requirements for savings accounts.Assembly or general assembly—This governing body is used by some nongovernmental organizations(NGOs) to select, appoint, or approve members of the board of directors. In some cases, the assembly may bea representative body elected by members of the NGO. In other cases, each NGO member may have its ownvoice on the general assembly.Biometrics—Biometrics is the measuring of a person’s unique physical characteristics, such as fingerprints orfacial features, to verify identity. The technology records the clients’ biometric features—fingerprints are themost commonly use—and stores this information on the MFI’s database and, usually, on a smart card that theclient carries for transactions.Board of directors—A board is a group of individuals elected or appointed to establish institutional managementpolicies and to make decisions on major issues. In NGOs, the board is often elected by the general assembly orappointed by NGO founders. In shareholder-owned institutions, the board is elected by shareholders.Deferred drawdown option—A deferred drawdown option (DDO) allows a country borrowing funds fromthe World Bank to postpone disbursement of a loan for a defined period, instead of drawing down fundsimmediately after approval. A catastrophe risk DDO (CAT DDO) provides liquidity immediately following anatural disaster which results in a declaration of a state of emergency.Financial lease—Under the terms of a financial lease, the client pays the full price of the equipment, plusinterest, in installment payments throughout the lease period. At the end of the lease period, the client maypurchase the equipment outright for a nominal amount (usually the remainder of the asset’s cost).Institutional shareholders—Shareholders are persons or entities that own shares or equity in a microfinanceinstitution (MFI). Shareholders may include individual private investors, NGOs, or other institutional investors.In credit unions, shareholders are commonly referred to as members.Institutional stakeholders—Stakeholders represent owner and nonowner groups with a legitimate interestin the company’s performance and with influence that might have a positive or negative effect on a company’scommercial performance and long-term sustainability. Stakeholders include regulators, providers of financing,employees, clients, and the larger community.Management information system—A management information system (MIS) is the system of collecting,archiving, retrieving, and using information. In microfinance, the MIS tracks loan officer productivity andclients’ repayments schedules and balances, among others. A good information system is vital for making timelyassessments of the quality of the loan portfolio and other variables that most affect cost and risk.Microcredit—Microcredit is the provision of loans tailored to the needs and capacity of microbusinessesand low-income households. Institutions providing microcredit are usually prohibited by national laws frommobilizing savings or providing other financial services beyond credit.Microfinance—Microfinance is the provision of basic financial services (such as loans, savings, money transfers,and microinsurance) to microbusinesses and poor people. People living in poverty, like everyone else, need a