Business Development Services: Support services that contribute to the growth of enterprises (eg. business planning, client training, networking, and marketing technical support).
Depth of Outreach: Extent to which financial services reach the relatively poor.
Financial Sector: The sector of the economy that comprises financial institutions and financial markets.
Financial Sector Deepening: The extent to which the financial sector serves a population in a country. Monetary assets to GDP ratio are the major indicator of financial sector deepening.
Financial Self-Sufficiency: 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.
Informal Sector: A term usually denoting workers and businesses for private gain that are not formally registered or recognized by the economic or administrative systems governing the areas in which they operate. The term can include home-based workers, informal subcontractors to formalized businesses, self-employed, paid workers in informal enterprises, unpaid workers in family businesses, casual workers without fixed employer, sub-contract workers linked to informal enterprises, and sub-contract workers linked to formal enterprises. Additional characteristics include:
Market Rate: The rate of interest borrowers must pay to borrow funds commercially. Program related investments generally are offered at below market rates or at no interest rate.
Microcredit: A part of the field of microfinance, microcredit is the provision of credit services to low-income entrepreneurs. Microcredit can also refer to the actual microloan.
Microfinance: Banking and/or financial services targeted to low-and-moderate income businesses or households, including the provision of credit. Microfinance is part of the financial sector.
Microfinance Institution: A financial institution - can be a nonprofit organization, regulated financial institution or commercial bank - that provides microfinance products and services to low-income clients.
Outreach: The number of clients that an institution serves.
Private Sector: The part of a nation's economy that is not controlled by the government.
Rural Finance: Financial institutions and their services that target those who live and work in nonurban areas and who are generally involved in agricultural-related activities. Rural finance can be a part of microfinance, while microfinance can also be a part of rural finance at the same time.
1. The poor need a variety of financial services: The Bank will support demand-driven microfinance interventions that develop and provide financial services.
2. Microfinance is a powerful instrument against poverty: The Bank will ensure that its operations support initiatives that increase the access of people in RMCs who are presently excluded from accessing quality financial services.
3. Microfinance means building financial systems that serve the poor: The Bank will support its RMCs to build such systems.
4. Financial sustainability is necessary to reach significant numbers of poor people: The Bank will support initiatives that help suitable intermediaries achieve financial self-sufficiency.
5. Microfinance is about building permanent local financial institutions: Dependence on concessional funding from such agencies as the Bank will only be temporary and diminish over time. The support of microfinance by the Bank will be contingent on intermediaries that are progressing toward, if they have not already attained, financial self-sufficiency.
6. Microcredit is not the only answer: In supporting microfinance in it’s the RMCs, the Bank will consistently establish that any resources applied to target groups and identified as credit will be extended through a viable institutional intermediary with a clear means of repayment at market rates of interest.
7. Interest rate ceilings debilitate the ability of all, but especially the poor, to access financial services: The Bank will support the ability of all RMC financial intermediaries to charge market rates of interest on loans. The Bank will further support the elimination of interest rate ceilings and the creation of more operational efficiencies to reduce MFI costs, thereby allowing them to reduce the rates of interest charged on loans.
8. Governments are to act as enablers, not as direct providers of financial services: The Bank will support RMC governments in defining the elements of the enabling environment necessary to mainstream microfinance into the formal financial sector. At the same time, the Bank will discourage RMC governments from directly funding people targeted by MFIs.
9. Funding agencies should complement, not compete with, private-sector capital: The Bank will provide selective support for initiatives with the objective of building inclusive financial systems. The Bank will, however, require a defined exit strategy at the outset of such support.
10. The absence of institutional and human resource capacity is the key constraint: The Bank will support building the institutional capacity of financial intermediaries to provide financial services in demand among people who do not have access to formal financial services.
11. Transparency in financial and outreach matters is important: Bank support to microfinance in the
RMCs will help ensure transparency at all levels and by all institutions.
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