IIBF Microfinance flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Microfinance definition

Provision of small-ticket financial services such as credit, savings, insurance and remittances to low-income households and micro-enterprises, usually without conventional collateral and with frequent small repayments.

Double bottom line

The twin objectives of microfinance institutions: achieving social impact through outreach to poor clients while remaining financially sustainable through adequate income and cost recovery.

Operational self-sufficiency

Operating income divided by the sum of operating expenses, loan loss provision and financing cost. A ratio of 1.0 or more means the institution covers its costs from operations.

Depth of outreach

A social performance measure of how poor the clients are, commonly proxied by average loan size relative to GDP per capita; smaller relative loan size suggests deeper outreach.

Group lending model

Lending to small self-formed groups whose members guarantee each other's loans. Joint liability and regular group meetings reduce screening, monitoring and enforcement costs for the lender.

SHG–bank linkage

A model where 10 to 20 members save regularly, lend internally, and later receive a bank loan in the group's name, with the bank dealing with the group rather than individuals.

Joint liability group

Four to five members who each take individual loans but provide a group guarantee. Widely used by banks and NBFC-MFIs to lend without collateral.

Individual lending appraisal

Collateral-free lending to a single micro-enterprise, appraised using household and business cash flow, repayment capacity, character, and often a guarantor or reference.

Micro-insurance

Low-premium, low-sum-assured insurance products such as life, health and asset cover designed for low-income clients, often distributed through MFIs, groups or agents.

Business correspondent model

An arrangement where a regulated entity appoints agents to deliver financial services at the customer's location, extending reach to unbanked areas at lower cost than full branches.

Microfinance loan definition

Under India's RBI framework, a collateral-free loan to a household whose annual income falls within the prescribed threshold; the household is the unit of assessment.

Repayment obligation cap

Indian microfinance rules require that a borrower's repayment obligation across microfinance loans not exceed 50 percent of the household's monthly income.

Flexible repayment rule

Regulated lenders must offer borrowers a choice of repayment frequency, such as weekly, fortnightly or monthly, aligned to the household's cash flow rather than a single fixed schedule.

No prepayment penalty

Microfinance regulations prohibit charging a penalty when a borrower repays a microfinance loan early; the borrower may close the loan ahead of schedule without extra cost.

Multiple lending rule

A borrower may belong to only one self-help group or joint liability group, and lenders must report and check borrower indebtedness with credit information companies.

Client protection standards

Conduct rules covering fair treatment, transparent pricing, privacy of client data, responsible lending, grievance redressal and recovery without coercion or public shaming.

Financial inclusion

Access to and active use of affordable, appropriate financial services, including savings, credit, insurance and payments, by all segments of the population.

Demand-side barriers

Constraints that stop people using financial services even when available: low literacy, irregular incomes, distrust, documentation difficulty and behavioural biases.

Supply-side barriers

Constraints on providers reaching low-income clients: physical distance, high transaction costs, collateral requirements, documentation rules and products not matching client cash flows.

Over-indebtedness risk

The risk that a household borrows from multiple lenders beyond its repayment capacity. Credit information sharing and borrower-level debt checks are the main mitigants.

Mission drift

The tendency of a microfinance institution to shift toward larger, wealthier borrowers to cut costs and raise profitability, reducing its outreach to the poor.

Portfolio at risk

PAR 30 equals the outstanding principal of loans overdue more than 30 days divided by the gross loan portfolio, expressed as a percentage of asset quality.

Liquidity risk

The risk of being unable to meet cash outflows such as loan disbursements and funding repayments when due; managed by maturity matching, cash buffers and diversified funding.

Operational risk controls

Internal safeguards in cash-based microfinance: segregation of duties, dual custody, field officer rotation, receipt-based collections, daily reconciliation and independent internal audit.

Concentration risk

The risk from excessive exposure to one branch, sector, geography or borrower; controlled by board-set exposure caps and diversification of the loan portfolio.

Stress testing

A forward-looking exercise that applies adverse scenarios, such as higher defaults or funding shocks, to the portfolio to estimate capital and liquidity needs.

Repayment capacity assessment

A calculation comparing the household's monthly net surplus with the proposed instalment, ensuring total repayment obligations stay within the regulatory or policy limit.

Collateral substitutes

Mechanisms replacing physical security in microfinance: joint liability, group guarantee, personal guarantor, hypothecation of stock, post-dated cheques and compulsory savings.

Early warning signals

Indicators of rising default risk: delayed instalments, missed group meetings, repeated rescheduling, business slowdown, illness, and borrowing from multiple lenders.

Restructuring

A documented change to loan terms, such as rescheduling or a moratorium, based on a revised cash-flow assessment of a borrower facing genuine repayment difficulty.

Collection efficiency

Amount collected in a period divided by amount due in that period; read with PAR and arrears ageing to separate temporary delay from genuine default.

Ethical recovery practice

Recovery conducted at an agreed place and time by courteous staff, without coercion, public shaming or physical pressure; coercive collection is a regulatory violation.