DEALING WITH FRAUD RISKS IN THE BANKING & MFI SECTOR

Last week, we looked at how the Central (or Reserve) Bank could use capital adequacy – part of national requirements for banks – to control and manage the financial institutions in a particular way. This was based on Basel II and Basel III. We also looked at the reason why some banks and financial institutions do fail. Today, we shall look at how the financial institutions could avoid or prevent such occurrences. One of these steps the financial institutions could adopt is called Risk Management. What is risk management? Risk management is the process of identifying, assessing and controlling threats […]

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WHAT IS CAPITAL ADEQUACY OF BANKS AND FINANCIAL INSTITUTIONS?

Introduction Over the last months, we have been looking at banking and other financial institutions and how the microfinance institutions operate. Today, we shall look at the capital of these institutions and how the regulators assess them. We shall look at the historical development starting from 1974 till date. Historical development Basel is a city in Switzerland. In 1974, all G-10 countries’ Central Bank Governors met in Basel in order to see how banking could be improved through a common guidance. Various policies were developed since then, but the most important one became operational in 1988 which is called Basel […]

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THE IMAGE ON THE WINDOW: A BUDDHIST HOUSE

I captured this image of the window of a certain office at the outskirt of an Asian city I visited in not too distant past. The owner of the building is a Buddhist. I need not write about it and I need not talk about it if I were to find it in a Christian home. But because of the wanton conceit and irresponsible spiritual indolence of the present-day mankind, I thought it wise to bring it across. What do you know about this thing and what does it represent? At the most sacred places of the Catholic church, you […]

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LENDING METHODOLOGIES IN THE MFI SECTOR

Introduction In the previous articles on the introduction to microfinance which was followed by sources of funding to the Microfinance Institutions (MFIs), we continue to deepen our knowledge in the field. We shall continue today with lending methodologies and look at how they help in developing clients upwards in poverty reduction. Methodologies These refer to how the loans are offered to the general public. How are the clients identified, selected, grouped, and which methods are selected for the offering of services to the clients or customers in general! In this wise, we shall focus on group loan and individual loan […]

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SOURCES OF FUNDING FOR MFIs

Introduction In the last month, we gave out an introduction to banking and other financial institutions. We also looked into a few details of the microfinance institutions (MFIs) and how they are different from the banks. Today, we shall look at the sources of funding to these MFIs and how they are able to amass adequate funding in order to serve their clientele. Shareholders’ Equity Many financial institutions are owned by wealthy individuals and corporate institutions. They put together the initial or seed capital of the business to kick-start the operation. This initial capital is used to get the license, […]

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YOUR CONFIDENCE INTERVAL

A confidence interval is defined as a range of values so arranged that there is a specified probability that the value of a parameter lies within it. Don’t mind the “book-long” definition. Ever since the divorce of mathematics and accounting in 1494 by the judge called Luca Pacioli, there still have been flirtation between the two. They refused just to get separated! And for this reason, no accountant is immune from mathematics. But that is not what I want us to talk about today. I want us to talk about the mathematical term called ‘confidence interval’ and how you can […]

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ARE DEVELOPMENT BANKING & WHOLESALE BANKING THE SAME?

Introduction In the last article, we were introduced to the differences between mainstream banks and the microfinance institutions (MFIs). We also looked at the reason why interest rates are higher in the MFIs than the mainstream banks and we got an introduction to the fixed interest rates and reducing or declining interest rates. Today we shall look at the development banks, wholesale banking institutions, their relationships and finally how you could get a facility from these big organisations. Development Banks A development bank is a bank that provides money for projects in poor countries or areas (Cambridge Dictionary). Development bank, […]

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HOW DIFFERENT ARE BANKS FROM MFIs?

I would like us to discuss an introduction to Banking and other financial services. First of all, what is a bank and what is microfinance? A bank is a financial institution that accepts deposits from the public and creates credit. Lending activities can be performed either directly or indirectly through capital markets. Due to their importance in the financial stability of a country, banks are highly regulated in most countries. Microfinance is a source of financial services for entrepreneurs and small businesses lacking access to banking and related services (Wikipedia). Difference between Banks and MFIs For the purpose of today’s […]

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