This Microcredit and Microfinance Glossary has been compiled from different sources. While efforts have been made to include as many relevant terms as possible, there may be a few missing. Also, different sources may have defined the same term, and all of these have been included. Currently, there are 321 terms in this list

Ability to Pay:A fuzzy concept that does not correspond in social science usage to what we would infer from common sense. Whether or not someone commands enough resources to contract a transaction (cash or credit) is not what is usually meant by the phrase. Ability to pay is a subjective judgment predicated on some assumption as to what people ought to pay. Thus, the low-income clients are said to have a lower ability to pay than middle-income earners, irrespective of whether or not they buy the good/service. It is unclear whether the exponents of the ability-to- pay concept would agree that making credit available increases such ability. See willingness to pay.Source: Virtual Library on Microcredit

Accumulating Savings and Credit Associations (ASCAs):Informal savings groups that resemble ROSCAs but are slightly more complex. In an ASCA, all members regularly save the same fixed amount while some participants borrow from the group. Interest is usually charged on loans. ASCAs require bookkeeping because the members do not all transact in the same way. Some members borrow while others are savers only, and borrowers may borrow different amounts on different dates for different periods. If members pay interest on their loans, the return to savings has to be individually calculated and fairly shared among the group.Source: CGAP

Active Clients:The number of clients with loans outstanding on any given date. An institutions official statistics on active clients are usually recorded as the number of clients with loans outstanding on the date its financial statements are filed.Source: ACCION

Active Loan Portfolio:The total amount loaned out less the total amount of repaid loans; i.e., all money that is on the street or owed to the institution in the form of loans on the date the report is filed.Source: ACCION

Affordability:A variant of the ability-to-pay argument requiring value judgments about the distribution of income. If something is unaffordable to poor people this might mean they should not purchase it even if they choose to! The argument is that it will reduce the income they have available to spend on other goods and services the evaluator considers socially more valuable. Thus, poor people should not smoke nor drink nor buy entertainment with subsidies provided by the government to compensate for income inequalities. Implicit is the idea that the donor/benefactor should make pricing decisions that correct for an inequitable distribution of income. This in turn implies that when prices are less than costs, someone must ante up a subsidy to cover the difference the amount a consumer will pay for a particular quantity of a good or service. In consumer demand theory, willingness to pay automatically implies ability to pay. In contemporary social science writing, ability to pay is sometimes contrasted with willingness to pay. The implicit assumption here is that even though people are willing and actually do pay a certain amount, they lack the ability to pay because they should have spent this money on something else. Buying the good (e.g., water) results in a loss of consumption of some other good or service and places the purchasers further below some socially defined minimum-consumption standard.Source: Virtual Library on Microcredit

Apex Scheme:Wholesale financing, second-tier lending, on-lending.Source: Calmeadow

Assessment:Also called evaluation. Assessments include instrumental appraisals, rating exercises, and other activities that may determine how well an institution performs financially, operationally, and managerially.Source: ACCION

Asset Liability Management (ALM)The process of planning, monitoring and controlling asset and liability volumes, maturities, rates and yields. A primary goal of ALM is to minimize interest rate risk while still earning sufficient profits. ALM is more important and complex for institutions engaged in financial intermediation because interest rate risk tends to be higher for these institutions than for institutions engaged solely in credit or savings. Financial institutions manage interest rate risk by carefully maintaining a balance between different types and volumes of assets (in particular, loans) and liabilities (in particular, savings).Source: CGAP

Assets:Anything of value. Any interest in real or personal property which can be appropriated for the payment of debt.Source: Renz and Massarsky

Audit/Control:Examination of organizational input/output cash flow (ie. internal audits, external audits, fraud investigation).Source: Calmeadow

Average Loan Balance per Borrower:Gross Loan Portfolio / Number of Active Borrowers.Source: The MIX Market

Average Number of Active Borrowers:(Beginning year Number of Active Borrowers + Year end Number of Active Borrowers).Source: The MIX Market

Average Number of Active Borrowers:Average Savings Balance per Saver.Source: The MIX Market

Average Savings Balance per Saver/ GNI per Capita (%):Average Savings Balance per Saver/ GNI per capita.

Bad Debt:A debt that is not collectible and is therefore worthless to the creditor.Source: Renz and Massarsky

Balance Sheet:Financial statement presenting measures of the assets, liabilities and owners equity or net worth of business firm or nonprofit organization as of a specific moment in time.Source: Renz and Massarsky

Bank:A licensed financial intermediary regulated by a state banking supervisory agency. It may provide any of a number of financial services, including:deposit taking, lending, payment services, and money transfers.Source: The MIX Market

Bankable:Bankable people are those deemed eligible to obtain financial services that can lead to income generation, repayment of loans, savings, and the building of assets.Source: International Year of Microcredit 2005

Benchmarking:Peer group benchmarking puts performance measurements in context by comparing an institution (e.g., an MFI) with similar institutions based on a common factor, such as region, size or methodology. A benchmark can also refer to the standard against which all similar institutions are compared.Source: ACCION

Borrowers per Staff Member:Number of Active Borrowers / Number of Personnel.Source: The MIX Market

Bridge financing:Interim financing used to solidify a position until more permanent financing can be made. The ACCION Latin America Bridge Fund provides bridges from microfinance institutions to local capital markets.Source: ACCION

Bridge Loan:Short-term loan to provide temporary financing until more permanent financing is available.Source: Renz and Massarsky

Business Development Services:Support services that contribute to the growth of enterprises (eg. business planning, client training, networking, marketing technical support).Source: Calmeadow

Business Plan:A document that describes an organizations current status and plans for several years into the future. It generally projects future opportunities for the organization and maps the financial, operations, marketing and organizational strategies that will enable the organization to achieve its goals.Source: Renz and Massarsky

CAMEL:A U.S. Federal Reserve-developed diagnostic tool that measures the Capital adequacy, Asset quality, Management, Earnings and Liquidity of financial institutions. ACCION adapted the CAMEL instrument to the microfinance industry as a quantitative and qualitative assessment of MFI financial performance.Source: ACCION

Capital Adequacy:A quantitative and qualitative measure of an institutions level of equity versus the risk it incurs. This measurement shows a programs ability to absorb loan loss.Source: ACCION

Capital markets:The market for trading long-term debt instruments (those that mature in more than one year).Source: ACCION

Capital Markets:Those financial markets, including institutions and individuals, that exchange securities, especially long-term debt instruments.Source: Renz and Massarsky

Capital:Broadly, all the money and other property of a corporation or other enterprise used in transacting its business.Source: Renz and Massarsky

Capitalization:Long-term debt, preferred stock and net worth. The loan capital of a community development loan fund; includes that which has been borrowed from and is repayable to third parties as well as that which is earned or owned by the loan fund (i.e. permanent capital).Source: Renz and Massarsky

Cash Flow Financing:Short-term loan providing additional cash to cover cash shortfalls in anticipation of revenue, such as the payment(s) of receivables.Source: Renz and Massarsky

Client Desertion:This key term deals with analysis of client exiting and desertion.Source: Calmeadow

Client Graduation:Microenterprise growth to medium-size enterprises and financial self-sustainability. The dynamics of microenterprise change of time.Source: Calmeadow

Clients below poverty line (%):Percentage clients below poverty line (where the poverty line is defined as population living on less than US$2/day).Source: The MIX Market

Clients in bottom half of the population below the poverty line (%):Percentage clients in bottom half of the population below the poverty line (where the poverty line is defined as population living on less than US$2/day).Source: The MIX Market

Clients in households earning less than US$1/day per household member (%):Percentage clients in households earning less than US$1/day per household member.Source: The MIX Market

Clients starting microenterprise for the first time (%):Percentage clients who access financial services from the MFI and who are starting a microenterprise for the first time.Source: The MIX Market

Collateral:Asset pledged by a borrower to secure a loan, which can be repossessed in the case of default. In a microfinance context, collateral can vary from fixed assets (a car, a sewing machine) to cross-guarantees from peers.Source: ACCION

Collateral:Assets pledged to secure the repayment of a loan.Source: Renz and Massarsky

Commercialization:In a microfinance context, commercialization refers to the move by MFIs to provide services on a financially self-sufficient basis and under prevailing commercial principle and regulations.Source: ACCION

Community Economic Development :Normally used by North American organizations, the focus is supporting communities with goals of creating local employment, preventing rural-urban flight and strengthening long term linkages within the community. Microfinance and microenterprise development may be part of these strategies.Source: Calmeadow

Community Economic Development:Community Economic Development is a process by which communities can initiate and generate their own solutions to their common economic problems and thereby build long-term community capacity and foster the integration of economic, social and environmental objectives.Source: Virtual Library on Microcredit

Community-based finance institution:The term Community-based finance institution (CBFI) has been formulated to define organizations which enable low-income groups to participate fully and democratically in the development process and which have their roots in the community. Frequently, these organizations are referred to as co-operatives, but some community-based organizations are in fact not co-operatives but groups with a similar structure and objectives.Source: Virtual Library on Microcredit

Compulsory / Mandatory Savings:Savings payments that are required as part of loan terms or as a requirement for membership, usually in a credit union, cooperative, microfinance institution, village bank or savings group. Compulsory savings are often required in place of collateral. The amount, timing, and level of access to these deposits are determined by the policies of the institution rather than by the client. Compulsory savings policies vary:deposits may be required weekly or monthly, before the loan is disbursed, when the loan is disbursed, and/or each time a loan installment is paid. Clients may be allowed to withdraw at the end of the loan term; after a set number of weeks, months or years; or when they terminate their memberships.Source: CGAP

Contractual / Programmed Savings:Savings in which the client commits to regularly depositing a fixed amount for a specified period of time to reach a pre-determined goal. After the maturity date, the client can withdraw the entire amount plus the interest earned. Early withdrawal is prohibited or penalized. Contractual products help depositors accumulate funds to meet specific expected needs, such as expenses associated with school, a festival, a new business, an equipment purchase, or a new house. They also help financial institutions better predict the volume and timing of deposits and withdrawals.Source: CGAP

Cooperative/Credit Union:A non profit, member-based financial intermediary. It may offer a range of financial services, including lending and deposit taking, for the benefit of its members. While not regulated by a state banking supervisory agency, it may come under the supervision of regional or national cooperative council.Source: The MIX Market

Co-operative:A co-operative, as defined by the International Labour Organization is an association of persons, usually of limited means, who have voluntarily joined together to achieve a common economic end through the formation of a democratically controlled business organization, making equitable contributions to the capital required and accepting a fair share of the risks and benefits of the undertaking.Source: Virtual Library on Microcredit

Cost per Borrower:Operating Expense/ Period Average Number of Active Borrowers.Source: The MIX Market

Cost to register a business (% of GNI per capita):Cost to register a business is defined as the total cost involved in accomplishment of all procedures necessary to start a business. The cost is expressed as a percentage of countrys GNI per capita. (The costs calculated here exclude bribes).Source: The MIX Market

Covenant:An agreement or promise to do or not to do a particular thing; to enter into a formal agreement; a promise incidental to a deed or contract. The following are functional objectives guiding most covenants:full disclosure of information, preservation of net worth, maintenance of asset quality, maintenance of adequate cash flow, control of growth, control of management, assurance of legal existence and concept of going concern, provision for lender profit or program goals.Source: Renz and Massarsky

Credit Bureau:An agency that contains information on the credit history of consumers so that creditors can make decisions about granting of loans.Source: ACCION

Credit Rating:Usually used to determine a bank or financial institutions credit risk, a credit rating is an evaluation of an individuals or companys ability to repay obligations or its likelihood of not defaulting; also see CAMEL.Source: ACCION

Credit Scoring:Measures the risk associated with each credit applicant/ microborrower. Credit scoring is an automated system that assigns points for various credit factors, providing lenders with the ability to grade prospective clients and to calculate the risk of extending credit. In a microfinance context, the credit scoring method is modified to take into account a microentrepreneurs experience, character and capacity to repay. The final credit score is an overall measure of the creditworthiness of the credit applicant.Source: ACCION

Credit Union / Savings & Credit Cooperative / Financial Cooperative:Not-for-profit member-owned financial institutions that are 1) governed by a board of directors comprised of members and 2) typically managed by paid staff who may or may not be assisted by volunteer committees of members. The board is elected by the members, each of whom has one vote. Credit unions and financial cooperatives are typically savings-based, i.e. they fund their loan portfolio with member deposits as opposed to external financing. Credit unions and financial cooperatives must be registered; they may be regulated by a special cooperative law or by the formal financial sector regulations in a country. Standards set out in cooperative law may be somewhat easier to meet than those in the countrys banking law; for example, the capital adequacy requirementsif they existmay be lower. At the same time, cooperatives may not be allowed to offer the same range of services as banks; they may not, for example, be allowed to offer current accounts. Where credit unions and financial cooperatives are regulated by the same entity as other financial institutions, they must comply with regulations issued either specifically for financial cooperatives or more generally for non-bank financial entities.Source: CGAP

Credit Union:A nonprofit, cooperative financial institution owned and run by its members. Members pool their funds to make loans to one another. The volunteer board that runs each credit union is elected by the members. Most credit unions are organized to serve people in a particular community, group or groups of employees, or members of an organization or association.Source: ACCION

Credit Union:In the financial sector, co-operatives which enable savings to be made and loans to be taken are generally known as credit unions which are registered under the legislation dealing with co-operatives in each country. The basic credit union is composed of a group of people having a common bond who may be resident in the same neighbourhood or employed at the same place of work, or it can be a religious or ethnic grouping. The principal reason for the emphasis on a common bond is that the social pressure of the group is considered a very important condition as security for loans It is a form of collateral which is not available in conventional finance.Source: Virtual Library on Microcredit

Credit Unions (including Credit Cooperatives):Community-based, financial co-operatives that are normally democratic and non-profit, with savings mechanisms and lower interest loans. Members invest in shares, giving them certain entitlements (eg. Election of boards or voting on policy).Source: Calmeadow

Current Accounts:Demand deposit accounts that allow the account holder to transact using checks. Account holders can also transact face-to-face in the branch and may be able to use ATMs or point of service devices.Source: CGAP

Current Asset:Assets that will normally be turned into cash within a year.Source: Renz and Massarsky

Current Liability:Liability that will normally be repaid within a year.Source: Renz and Massarsky

Current Ratio:Current assets divided by current liabilities — a measure of liquidity. Generally, the higher the ratio, the greater the cushion between current obligations and a firms ability to meet them.Source: Renz and Massarsky

Debt Service Reserve:Term used to refer to cash reserves set aside by a borrower, either by internal policy or lender covenant, to repay debt in the event that cash generated by operations is insufficient.Source: Renz and Massarsky

Debt Service:Amount of payment due regularly to meet a debt agreement; usually a monthly, quarterly or annual obligation.Source: Renz and Massarsky

Debt:An amount owed for funds borrowed. The debt may be owed to an organizations own reserves, individuals, banks, or other institutions. Generally, the debt is secured by a note, bond, mortgage, or other instrument that states repayment and interest provisions. The note, in turn, may be secured by a lien against property or other assets.Source: Renz and Massarsky

Default:A failure to discharge a duty. The term is most often used to describe the occurrence of an event that cuts short the rights or remedies of one of the parties to an agreement or legal dispute, for example, the failure of the mortgagor to pay a mortgage installment, or to comply with mortgage covenants.Source: Renz and Massarsky

Default:Failure to make timely payment of interest or principal on a loan, or to otherwise comply with the terms of a loan.Source: ACCION

Delinquent:In a monetary context, something that has been made payable and is overdue and unpaid.Source: Renz and Massarsky

Demand / Sight Deposit:Fully liquid accounts in which the saver may deposit and withdraw any amount at any time with no advance commitment. The saver must maintain a minimum required balance. Demand deposit transactions (deposits, withdrawals, transfers/payments) may be made using passbooks, debit cards and ATMs and/or POS devices, and, in current accounts, checks. If clients overdraw their demand deposit accounts, financial institutions generally charge penalties and/or high levels of interest if they do not reject the payment outright.Source: CGAP

Deposit InsuranceInsurance to reimburse depositors for the loss of their deposits in the event that their financial institution fails. Deposit insurance is typically provided by government as an adjunct to regulation and supervision. It may also be required by regulation but provided by private insurers. Deposit insurance does carry a risk:by assuring that depositors will not lose their savings if a bank goes under, it can 1) undermine depositorsEmotivation to oversee the institutions in which they deposit and 2) encourage managers to take on more risk than they otherwise would if the deposits were not insured.Source: CGAP

Deposit interest rate (%):Deposit interest rate is the rate paid by commercial or similar banks for demand, time, or savings deposits.Source: The MIX Market

Deposit Rates:Usually refers to rates offered to resident customers for demand, time, or savings deposits. Often, rates for time ands savings deposits are classified according to maturity and amounts deposited. In addition, deposit money banks and similar deposit-taking institutions may offer short-and medium terms instruments a specified rates for specific amounts and maturities; these are frequently termed certificates of depositESource: The MIX Market

Development Bank:Generally country-owned and state-based, these banks offered agricultural credit originally and have moved to offer microfinancial services.Source: Calmeadow

Development Finance:Term that encompasses all financial services provided to low-income clientele in less developed nations – including microloans, microsavings, microinsurance, etc.Source: ACCION

Disbursement:The actual transfer of financial resources. The disbursement of a microloan reflects the transfer of the loan amount from the lending institution to the borrower.Source: ACCION

Donations:Donations received in the financial year to apply towards operation of financial services.Source: The MIX Market

Downscaling:Formal financial institutions that offer a microfinance window such as Vancity Credit Union or Hatten Bank. This process is called downscaling.Source: Calmeadow

Due Diligence:Refers to the task of carefully confirming all critical assumptions and facts presented by a borrower. This includes verifying sources of income, accuracy of financial statements, value of assets that will serve as collateral, the tax status of the borrower and any other material facts presented by the borrower.Source: Renz and Massarsky

Empowerment:Impact of design for political participation, legal awareness, ability to exercise personal and socio-political rights and freedoms.Source: Calmeadow

Endowment or Trust:A fund that contains assets whose use is restricted only to the income earned by these assets.Source: Renz and Massarsky

Environment:Impact of programs on the natural environment, creation of environmental initiatives. This literature includes environmentally-focused loan funds.Source: Calmeadow

Equity Participation:An ownership position in an organization or venture taken through an investment. Returns on the investment are dependent on the profitability of the organization or venture.Source: Renz and Massarsky

Equity:The value of property in an organization greater than total debt held on it. Equity investments typically take the form of an owners share in the business, and often, a share in the return, or profits. Equity investments carry greater risk than debt, but the potential for greater return should balance the risk.Source: Renz and Massarsky

Exchange Rates:Price in a given currency at which bills drawn in another currency may be bought. In the MIXMarket Environment section the exchange rates are expressed in time series of national currency units per U.S. Dollar using data from the IFS/IMF. For period average rates the data are based in the monthly average of market rates or of official rates of the reporting country (and principal, secondary or tertiary rates for countries maintaining multiple exchange agreements). These estimates are derived on the basis of a simple average of the end-of-month market rates in the markets of the reporting country.Source: The MIX Market

External Audit:A formal, independent review of an institutions financial statements, records, transactions and operations. External audits are usually performed by professional accountants in order to lend credibility to financial statements and management reports, to ensure accountability for donor funds, or to identify internal weaknesses in an organization. The external audit process is key to transparency.Source: ACCION

Financial Depth:Liquid liabilities (M3) as % of GDP.Liquid liabilities are also known as broad money, or M3. They are the sum of currency and deposits in the central bank (M0), plus transferable deposits and electronic currency (M1), plus time and savings deposits, foreign currency transferable deposits, certificates of deposit, and securities repurchase agreements (M2), plus travelers checks, foreign currency time deposits, commercial paper, and shares of mutual funds or market funds held by residents.Source: The MIX Market

Financial Expense:All interest, fees and commissions incurred on all liabilities, including deposit accounts of clients held by the MFI, commercial and concessional borrowings, mortgages, and other liabilities.Source: The MIX Market

Financial IntermediationThe process of mobilizing deposits and disbursing them as loans to clients or investing them in other types of financial instruments. Managing financial intermediation is significantly more demanding than managing credit alone. In particular, maintaining the quality of assets is more important in order to protect the value of deposits and managing liquidity, internal controls and assets vis-Evis liabilities are more challenging.Source: CGAP

Financial Management:Financial management is a broad topic in microfinance operation management including interest rate setting, revenue generation, cost analysis, delinquency management, profit centres, credit bureaus and general accounting.Source: Calmeadow

Financial Revenue (Total):Includes all Financial Revenue and Other Operating Revenue.Source: The MIX Market

Financial Revenue:Includes revenue generated from both the Gross Loan Portfolio and investments.Source: The MIX Market

Financial Self-Sufficiency (FSS):Total operating revenues divided by total administrative and financial expenses, adjusted for low-interest loans and inflation. In a microfinance context, an institution is financially self-sufficient when it has enough revenue to pay for all administrative costs, loan losses, potential losses and funds.Source: ACCION

Financial Services Development:Innovative services for microcredit clients Eeg. microleasing, insurance, money transfers.Source: Calmeadow

Fixed Assets:Long-lived property of a microentrepreneur or firm that is used in that business production (i.e., a sewing machine is a fixed asset for a microentrepreneur who makes clothing). Fixed-asset lending is a type of microfinance product that disburses loans expressly for the purpose of purchasing these fixed assets, which aid in production volume and income.Source: ACCION

Fixed-Asset Lending/ Loan:Microfinance product in which loans are disbursed expressly for the purpose of purchasing fixed assets, which aid in production volume and income.Source: ACCION

Foreign Direct Investment, net inflows (% of GDP):Foreign Direct Investment (FDI) is net direct investment that is made to acquire a lasting management interest (usually 10 percent of voting stock) in an enterprise operating in a country other than that of the investor (defined according to residency). The investors purpose is to be an effective voice in the management of the enterprise. FDI is the sum of net equity capital, net reinvestment of earnings, net other long-term capital, and net short-term capital as shown in the balance of payments.Source: The MIX Market

Formal Financial Sector:Policy and processes involved with the formal financial sector, including interest rates, exchange rates, inflation, market fragmentation and corrective measures.Source: Calmeadow

Fund Advisor(s):The company or companies that are given primary responsibility for managing a fund.Source: The MIX Market

Fund Assets (US$):Total Assets held by a Fund.Source: The MIX Market

Fund Assets allocated to MF Investments (US$):The funds monies set aside specifically for investment in the Micr