MICROFINANCE PUBLICATION ROUND-UP: Flexible Microloan Repayment Schedules in Bangladesh; Merchant Acceptance of Digital Payments in Developing Countries; Global Standard-setting Bodies and Financial Inclusion

“Cost-Benefit Analysis of Traditional Versus Flexible Microfinance in Bangladesh;” by S. Bairagi, W. Bin Shadat; published by the Copenhagen Consensus Center; May 2016;  32 pages; available at: http://www.copenhagenconsensus.com/sites/default/files/bin_shadat_microfinance.pdf

This paper estimates the differences in “social benefits” between the traditional microfinance method and a more flexible repayment system by using net present value (NPV) and benefit-to-cost ratio (BCR) methods. Under the flexible system, a borrower is allowed a repayment-free grace period of one or more months beginning at the time of loan disbursal. Social benefits are measured through a mathematical model wherein microfinance institutions act as a profit maximizer. The difference in NPVs of the future benefits for both methods is minimal. However, the BCR of the methods ranges between 1.93 and 2.60 for the flexible method and 1.31 and 2.09 for traditional microfinance. Based on the BCRs, the authors conclude that the welfare gains for flexible microcredit are higher and that there is potential for creating a new flexible microcredit market in Bangladesh.

“Enabling Merchant Payments Acceptance in the Digital Financial Ecosystems;” by A. Weinberg, D. Salazar, C. Niehaus, A. Sathnur, C. Coye Benson, J. Lasko; published by the International Telecommunication Union; May 2016;  42 pages; available at: http://www.itu.int/en/ITU-T/focusgroups/dfs/Documents/09_2016/FINAL%20ENDORSED%20Enabling%20Merchant%20Payments%20Acceptance%2030%20May%202016_formatted%20AM.pdf

The authors of this paper argue that increased merchant acceptance of digital payments will aid in creating “digital liquidity” by enabling consumers to increase their usage of digital wallets, thus lowering cash-out costs. However, the authors find that there are several challenges to overcome in motivating merchants to accept digital payments, such as merchant acquisition and underwriting, risk management, dispute management and improving analytics. The authors state that better analytics and modeling can help address these issues.

“Global Standard-Setting Bodies and Financial Inclusion: The Evolving Landscape;” by T. Lyman et al.; published by the Global Partnership for Financial Inclusion; March 2016;  126 pages; available at: http://www.gpfi.org/publications/global-standard-setting-bodies-and-financial-inclusion-evolving-landscape

This paper is intended to raise awareness of the changing global financial landscape including by promoting the collaboration of standard-setting bodies (SSBs) to support financial inclusion. The topics that these organizations are addressing include online “peer-to-peer” lending, digital currencies and the need for differentiated consumer protection for underserved customers. The authors also suggest: (i) further enhancing collaboration among SSBs on financial inclusion; (ii) limiting due diligence for smaller transactions and accounts; (iii) deepening the understanding of the risks of financial exclusion; and (iv) encouraging crowdfunding bypass traditional financial intermediaries.

By Kevin van den Brink, Research Associate

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