Lending Models and Microfinance Institutions

by Paul Jones Introduction This paper will compare and contrast the group lending and individual lending models used by Microfinance Institutions, which first emerged in the later decades of the 20th century, and discuss the situations where one model may be preferable to the other. The academic literature on this topic is growing, and there are many subtleties to consider when comparing the pros and cons of group versus individual lending. An in-depth analysis of this complex topic is well beyond the scope of this essay. Rather, a high level synopsis will be presented that attempts to compress the salient points. The concept of crowdfunding is also discussed, and how it relates to the group and individual lending models frequently

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Financial Access and the Special Role of Internet Connectivity in the Developing World

Introduction This essay will examine the accessibility of financial and banking services in both the developed and developing world, and the enabling role played by digital technologies such as the Internet, especially in less developed countries. First, a pre-Internet, bird’s-eye view of the diffusion of banking and financial services in more developed countries is reviewed to provide background. Second, important prerequisites for improving the destiny of the unbanked and under-banked in LDCs are enumerated. Third, the modern Internet as a leapfrog technology, with an expanding role as an essential platform for financial access in emerging markets, is explored in light of these prerequisites. And lastly, a conclusion briefly summarizes the ideas advanced in this paper. Financial Services Pre-Internet in the

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The Oligopoly of Payment Networks

What are the advantages and disadvantages to the oligopolical structure of payment networks? If you could, what changes would you make to the current system, if any?   The current payment network market is dominated by a small number of players. By definition that makes it an oligopoly. Visa is by far the biggest, followed by Mastercard, followed by a few much smaller companies. They operate a credit card and debit card networks. The system as it exists now is far from idealistic, but it has some advantages. Of course most of the advantages are designed to benefit the incumbents. Visa and Mastercard are very well recognized brand names all over the world. Both are accepted in the vast majority of

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Non-RTGS settlement system & Bitcoin.

Select one type of non-RTGS settlement system that exists in the existing financial system and highlight how it could theoretically work, in a Bitcoin-centric ecosystem The National Settlement Service (NSS) is a non-RTGS settlement system in the United States. Designated agents submit electronic files on behalf of participants in a clearing arrangement. The participants are depository institutions with accounts at a Reserve Bank. Once a file is submitted, verified, and processed the settlements are final. Each debit is checked against the account balance and intra-day credit of the participant in their Federal Reserve Bank. The NSS is owned and operated by the Federal Reserve Banks. In a Bitcoin-centric ecosystem there are more than one way to implement such a system. In

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Liquidity and Credit Risk in Settlement Systems.

Describe the trade-off between liquidity and credit risk in a settlement system and highlight how different RTGS, net and hybrid systems address this topic. Liquidity and credit risk are two competing characteristics of a settlement system. An increase in liquidity necessitates an increase in credit risk. The different types of settlement systems address the issue in various ways. RTGS Systems eliminate credit risk by settling all payments in real time as they arrive. Participants have deposits on file with the central bank running the RTGS against which debits can be deducted. Participants can also have collateralized credit lines to further fund their debits. It is noteworthy that the FED lowered the quality and expanded the types of collateral accepted during the

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Payment & Settlement Systems, Past Patterns & the Future.

What patterns and themes have emerged from the last 30 years of payment / settlement system development? Given these patterns, what can we expect future developments to focus on? Over the last 30 years of developments in payment/settlement systems certain pattern have emerged. They can be categorized as: technological advancement which drove almost all innovation, development of widely used standards, globalization, increase in competition, decrease in fees charged, regulatory push for more security of systems, security of data, fault tolerance, mobile accessibility, and mitigation of various risk factors. Systems have become increasingly  sophisticated with respect to technology. This has had an impact on almost all aspects of  payment/settlement systems. Improvements in technology translate directly to faster and cheaper systems as human interaction

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