In general, terms in MicroFinance are directly related to terms found in the formal financial sector. The individual MicroFinance Institution (MFI) may also use specialized nomenclature to describe common banking concepts.
Active Client - a) one who has an existing loan or capital built up in an account. b) one who has been making payments within the last 60-180 days.
Balances of Loans past due - Outstanding balances of loans with at least one scheduled payment (amortization) missed.
Black List - list of customers who are no longer permitted to participate. Such lists can be shared between MFIs.
Cashpor housing index - a poverty assessment tool. Lending in microfinance is targetted to the poor, so efforts are made to ensure that targetting is accurate. This is a formal tool and approach which provides meaningful proxy data to the question - "are you poor enough" to get the loan. Resources at Article
Current portfolio the outstanding value of all loans that do not have any installment of principal past due. It does not include accrued interest.
Gross loan portfolio {b1} (#1) - the outstanding principal balance of all of the MFIs outstanding loans including current, delinquent and restructured loans, but not loans that have been written off. It does not include interest receivable. Although some regulated MFIs may be required to include the balance of interest accrued and receivable, the MFI should provide a note that provides a breakdown between the sum of all principal payments outstanding and the sum of all interest accrued. Some MFIs choose to break down the components of the gross loan portfolio (see B2, B3, B4). The gross loan portfolio is frequently referred to as the loan portfolio or loans outstanding, both of which creates confusion as to whether they refer to a gross or a net figure. The gross loan portfolio should not be confused with the value of the loans disbursed (see P1 below).
Interest expense - Summation of two components: (i) interest paid and due to banks and other financial institutions for money loaned to the organization; and (ii) interest payments earned by clients who have deposit accounts with the organization.
Operating Income -Refers to interest income, fees and other income arising from microfinance operations.
Operational Self-Sufficiency ratio - essentially a measure of profitability, the OSS is calculated as the fees and interest paid by the client over the cost of service delivery for the MFI. An OSS of 100% is breakeven for covering variable costs. Sunk capital costs are not included typically.
Past due Loans with at least one missed amortization.
Performing portfolio {b2} (#1) is part of the gross loan portfolio which includes the value of all loans outstanding that do not have a principal installment of principal past due beyond a certain number of days and have not been rescheduled or restructured (see B4). It does not include accrued interest. A standard of ≤ 30 days is common, but regulations may require MFIs to use a different standard. The MFI should state clearly what the definition of the performing portfolio is.
Portfolio-at-risk {b3} (#1) the value of all loans outstanding that have one or more installments of principal past due more than a certain number of days. This item includes the entire unpaid principal balance, including both the past due and future installments, but not accrued interest. It also does not include loans that have been restructured or rescheduled. Portfolio at risk is usually divided into categories according to the amount of time passed since the first missed principal installment.
Restructured portfolio{b4} (#1) the principal balance of all loans outstanding that have been renegotiated or modified to either lengthen or postpone the originally scheduled installments of principal, or substantially alter the original terms of the loans. This item also includes refinanced loans, which are loans that have been disbursed to enable repayment of prior loans by clients who otherwise would have been unable to pay the originally scheduled installments.
Loan loss reserve{b5} (#1) the portion of the gross loan portfolio that has been expensed (provisioned for) in anticipation of losses due to default. This item represents the cumulative value of the loan loss provision expenses (I6) less the cumulative value of loans written off (P5). This is also referred to as an allowance for doubtful accounts. / It should be noted that the loan loss reserve is usually not a cash reserve, but rather an accounting device to provide the reader information about the size of the anticipated loan losses from past due loans. The reserve is built up from specific provision expenses related to the portfolio at risk (B3) or in some cases general provision expense against the entire gross loan portfolio (B1).
Write off - The act of removing a bad, or non-performing loan, from the assets side of the balance sheet. This usually occurs after all attempts have been taken to activate or collect a portion of the loan. The write-off policies of organizations should spell out at what point loans are written off. It is also used to indicate the amount of loans actually written-off.
Term definition.
Mifos Terms
Accounting Plug-ins and Connectors - referring to the design of a system where both systems communicate through messages (and not remote methods or proceedures).
Area - one level of the organizational hierarcy: Branch, Area, Region. There may or may not be a physical location. Not all MFIs have the same number of levels.
Bulk Entry - the concept in the design where all transactions for a specific period and operator are batched together in a single display and then subsequently posted to the ledgers. The concept also includes the printing of the expected payments for that period/operator.
Common concepts from banking.
Account Statement - printed report of balances of accounts for the customer.
Account(s) - customer hold and account with the banking entity.
Arrears
Interest rate calcuations
Interest The amount a borrower pays in addition to the principal of a loan to compensate the lender for the use of the money.
Interest Rate The expression of interest as a percentage of the principal.
Nominal interest rate The stated rate to be paid on a loan contract, usually as a monthly or annual percentage. It does not reflect inflation or take into account related loan fees, commissions, and other expenses.
Effective interest rate Converts all financial costs such as interest, fees and commissions into a declining balance interest calculation and includes the effect of compounding. The effective rate represents the financial cost to the borrower. It includes all financial charges as a percent of the loan amount used during each payment period and represents everything the MFI earns. (The best way to calculate this rate is to use the internal rate of return function on a financial calculator.)
Annual percentage rate (APR) The rate of interest on a declining balance for a period (for example for a month) and then multiplied by the number of periods in a year (for example 12 months) to get the annual interest rate. The key difference between APR and effective interest rate is that the APR does not include the effects of compounding or forced savings Real interest rate Adjusts the interest rate to reflect the rate of inflation. A negative real rate implies that the rate of interest charged falls below the inflation rate. People frequently speak of positive rates of interest to mean that the rate is set above the inflation rate.
Interest Spread The amount between the nominal lending rate and the nominal rate of interest paid on savings stated as a percentage.
Flat rate method Interest is calculated by multiplying the term of the loan by the monthly interest rate by the principal amount, irrespective of the payment plan (which may be a lump sum or in installments).
Flat Rate Method Interest is charged on initial loan amount rather than outstanding loan balance.
Declining Balance Method Interest charged on outstanding loan balance at given point in time, hence interest amount is different for every period.
Variable interest rate - the nominal rate changes according to external factors, such as the national inflation rate. Variable interest rates can only be applied to declining balance methods.
working area - items requested for definitions
Active Funds Accounts - refers to funding sources that can be used when doing disbursement in the system
Administrative fee structure
Aging of Portfolio - banking
Annualized interest rate
Associated borrower Accounts
Audit Trail
Audit Trail for Transactions
Average Balance on Account
Back Office Systems
Bank routing of checks?
Borrower
Branch Accountant
Branch Manager
Branch Office
Branch Supervisor
Bulk Transfer - mifos term refers to need to do field officer centric design where a key task is doing all of the transactions for a single day in a simple interface as a single batch concept.
Calculation Periods
Cash Management
Center
Client
Client Assets
Client Income Levels
Client Loan Application
Client Management Tool
Co-Guarantors
Collateral
Collateral Type
Collateral Worth
Commission
Compulsory Loan - does not exist
Cost Centers
Credit Bureau Standard - working on it
Credit Officer (same as Loan Officer and Field Officer)
Internationalization (I18N?) : I18N? is an industry standard abbreviation for 1 Internationalization (because there are 18 letters between the I and the n).
Liability of Savings - accounting (savings are considered liabilities on the balance sheet)
Loan
Loan Cycle how many loans have come before this one for this customer
Order of payment Application - what comes first: interest, fees, principle from an incomplete payment
Penalties (several types, list and define)
Periodicity of calculations
Portfolio Account Tool - mifos term
Portfolio Aggregator - mifos term
Portfolio Manager - mifos term
Poverty Metrics measures used for targetting loans and other products
Pre-paid loans - paid in advance
Principle - banking
Product Account Code - accounting
Promisory note - banking
RDBMS - relational database management system
Receipt - accounting
Region - organizational service area
Re-payment schedule
Report Generator - mifos term
Roles - tech
Savings Account (or Deposit Accounts)
Scheduled Payments
Secured lines of credit
Security Levels
Setup Analyzer / Manager - mifos term
SHG Style of Micro Finance Operation- self help groups are found in India, and use different methodologies for loan disbursement, collection, and use of savings.
Source of Funds - accounting
Source of Funds Type - accounting
Standard interest rate
Sub-Ledger Accounting
System Administrator / MIS
System Parameters Audit Trail
System Security Administrator
Teller
Teller Loans - distinguished from field issued loans
Third-Party Accounting Systems
Total Revenues
Transaction Date
Transaction Entry Date
Transaction Medium
Transactions (obviously there are different types, please explain all types)
Two-stage processing (propose and confirm)
User Level Access Rights: Certain users have access to
VCN (Citrix products) - IT sector term used to denote remote connections for virtual connections
Village Bank - another methodology. FINCA, a microfinance network, uses the Village Bank model
Voucher - a receipt in some case, sometimes bank issued for redemption elsewhere
Write-off Loans - accounting term
Share (or Stock)
User: People who have permission to access Mifos product and work for a particular MFI. Each one must below to a Work Group and have a username and password to enter to the application. For many transactions, changes to client and account information, and system parameters changes, the user that makes the changes is recorded for audit purposes.