XBRL

XBRL provides a common format for recording, exchanging, and assigning meaning to the key valuation metrics (both social and financial) of a microfinance institution.

XBRL tagged financial, social, environmental, governance and political data can be easily shared and analyzed, making key valuation metrics very portable and easily accessible by investors.

Although transparency is important to investors, transparency is equally important within MFI operations. MFI management should begin to think about ways to increase the transparency of their organization operations. A quick and relatively inexpensive way of gaining that operational visibility is to utilize XBRL. Use of XBRL within MFI operations provides many advantages including:

• Ability to access operational information from different applications;
• Improved accuracy in the financial information because of built in validation tools;
• Fewer errors during information exchange;
• Less time exchanging data and manually reviewing data; and
• Increased ability to automate reporting.

Leveraging XBRL taxonomies that include both financial and non-finanical data, such as the MIX and IRIS taxonomies, Riskebiz can help MFIs achieve a level of transparency and efficiency that is greatly needed within the microfinance industry.

Management Information Systems (MIS)

A management information system, known as an MIS or simply IS, involves all aspects of gathering, storing, tracking, retrieving and using information within a business or organization. Thanks to the development of computers and the software applications that run on them, much of this work can now be automated and the information more readily accessed. However, the software application itself is not the information system. All the policies, procedures, and practices that direct an organization's operations and the staff that interact with the information, combined with the software and hardware, comprise an information system. (Source CGAP)

Mobile Money Transfer (MMT)

Mobile Money Transfer (MMT) allows users to make four basic types of transactions over their mobile phone:

• Transfers from person to person;
• Transfers from individuals to businesses;
• Cash withdrawals at designated outlets; and
• Loan receipt or repayment.

MMT provides a platform for MFIs that enables customers to receive and repay small loans using his or her handset. The use of this technology lowers the cost of business leading to lower interest rates.

Microinsurance Schemes - How the Riskebiz Fund and Microinsurance Benefit MFIs

One of the objectives of the Technical Assistance to be provided by the Fund will be to increase the value of MFIs in the investment portfolio through capacity building. Capacity building plays a critical role in helping MFIs not only lower their operating costs but also helping them to scale their operations and retain customers. Most other microfinance funds do not provide this service.

A very effective way to provide capacity building is through the implementation of microinsurance schemes.

Microinsurance is insurance characterized by low premiums and coverage limits, designed to service low-income people and businesses not served by typical social or commercial insurance schemes. Microinsurance is increasingly being offered by MFIs in conjunction with microcredit loans. Although microinsurance has not received the same attention that microcredit has, investors, governments and financial institutions have slowly come to realize that microfinance entrepreneurs need a range of financial services of which microinsurance is a crucial part.

A microinsurance scheme encompasses both the design and delivery of insurance products to MFI clients, which will primarily be microcredit loan borrowers. Designing a sound microinsurance scheme is challenging and complex requiring specific technical expertise and/or data that most MFIs do not possess.

The Fund will be responsible for implementing microinsurance schemes, which will include development of the following:

• Insurance products (in conjunction with insurance carrier or captive);
• Distribution and marketing channels (through mobile phones); and
• Mobile money transfer solutions (for premium and claim payments).

Microinsurance and MFI Valuation

As stated above, one of the objectives of the Technical Assistance to be provided by the Fund is to increase the value of MFIs in the Fund’s investment portfolio through the implementation of microinsurance schemes. The valuation of a MFI is based primarily, though not exclusively, on the following elements:

• Loan portfolio quality;
• Efficiency and productivity;
• Financial management;
• Profitability;
• Management and governance;
• Net income growth; and
• Social return.

The microinsurance scheme provided through the Fund cannot address all the valuation metrics above, but it can positively impact loan portfolio quality, efficiency and productivity, profitability, net income growth, and social return and in the process have a significant positive impact on the valuation of the MFI.

Portfolio Quality
Inability to manage vulnerability caused by the loss of income or property, sudden death of a family member or illness can increase the likelihood of loan default and perpetuate poverty. Loan-linked microinsurances (mandatory or voluntary in nature) can play an important role in mitigating losses resulting from such risks thus reducing loan defaults and improving loan portfolio quality for MFIs.

Efficiency and Productivity
Technology has tremendous potential to increase the efficiencies of microinsurance, bring down operating costs and ultimately reduce premiums to MFI clients. Several uses of technology have already had important impacts on microinsurance delivery and include mobile communication and transaction technologies and the internet. These efficiencies, such as mobile money transfer solutions for premium and claim payments, can extend beyond the microinsurance scheme to provide for overall improvements in efficiency and productivity in the microcredit operations for the MFI.

Profitability
In addition to the increased profitability achieved through the cost efficiencies, improved productivity and reduced loan defaults produced through a microinsurance scheme, the sale of microinsurance products offers an additional revenue stream for MFIs, especially when a captive insurance facility is utilized thus further increasing their profitability.

Net Income Growth
By effectively managing loan default risk through a microinsurance scheme, MFIs are able to more rapidly expand their loan portfolio and augment that revenue growth with insurance products. In addition to facilitating the expansion of loan portfolios, microinsurance offers an additional revenue stream for MFIs as they can receive a risk management fee or commission for distributing policies on behalf of microinsurers.

Social Return
By reducing vulnerability and mitigating the negative effects of external shocks on poor households, microinsurance reduces household efficiency losses and protects assets so that the poor can escape poverty traps. This social component of the dual bottom line return improves the overall MFI valuation.