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HOW EMBEDDED FINANCE IS DRIVING FINANCIAL INCLUSION

Adaobi moved to Lagos, Nigeria’s commercial capital in 2018 from Enugu hoping to secure a high paying job in 2018, but when none was forth-coming, she decided to embark on the entrepreneurship journey. To realize this, she approached her bank for a business loan.

After weeks of filling all sorts of forms, Adaobi was eventually notified that her loan request had been declined.
“I filled many forms, went to the bank a couple with the hope that they will give me the loan since it was N250,000 to start my business. But I was disappointed when I was turned down,” Adaobi said.

Her experience is one tale out of the many about the different hurdles Nigerians face when trying to access financial services.

But the advent of financial technology is changing all of that as many non-bank businesses are springing up and offering financial services such as; quick loans, bank accounts, savings and investment wallets, payments and lending to a tech savvy audience (banked and unbanked) – without statutory documentation.

The concept of companies offering bank or financial like services to the public is known as embedded finance. The aim is to simplify financial service processes for consumers, making it easier for the public to access money-related services they need, anytime, anywhere.

Imagine not having to approach a bank physically for loans, paying cash when making purchases at a store, logging on to your bank app before making a money transfer, buying global stocks from the convenience of your phone apps, buying insurance on a product when making a purchase, investing your money without needing a fund manager, purchasing a product now and paying later. Those are some of the things embedded finance is enabling.

According to a Forbes report, the estimated market value for embedded finance will be over $138 billion by 2026. It is therefore clear that it’s not just a financial trend, it’s the future of transactions.

Fintech startups like Piggyvest, Kuda, Bamboo, Flutterwave, Paystack, Paystack, RiseVest, FairMoney, Branch, RenMoney, Risevest are a few of the non-traditional finance entities offering customers embedded finance services in savings, loans, investment, money transfer, invoicing etc.

According to Dataphyte, a media and research data analytics organization. N26.17 trillion was the total figure of unbanked money in Nigeria from January to November 2021. Most of these transactions happened outside of traditional banking systems through embedded finance services.

In its own survey, the United Kingdom EFInA (Access to Financial Services in Nigeria 2020) stated that 51% of Nigerian adults now use formal financial services, such as bank, nonbank, microfinance bank, mobile money, insurance, or pension accounts, up from 49% in 2018.

The growth in financial inclusion has in part been aided by digital access, financial services and agent banking. This, therefore, underscores the need to explore the opportunities that will drive faster progress towards financial inclusion, particularly for groups such as young people, men and women in rural Nigeria.

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10 TOP FEATURES OF THE BEST OFFSHORE BANKS

You wouldn’t dream of assuming that all domestic banking institutions are the same, so why lump all offshore banks together? The fact is that not all banks offer the same features or the same level of service.

Before choosing an international bank to house part of your assets, compare different banks to see what each offers. Be sure the following features are present before doing business with any offshore bank.

1. High Degree of Political and Economic Stability

No country is immune to some amount of political and economic upheaval. That’s as true offshore as it is at home. Your goal is to identify a bank located in a nation that enjoys significant stability regarding the political climate and the economy.

Look closely at the nation’s history, especially in terms of how it has weathered worldwide economic shifts. If it could fare better in comparison to many other countries, having offshore check and savings accounts there makes sense. In like manner, a nation that has enjoyed several years of political stability is more likely to enjoy that state for many more years.

2. Dedication to Depositor Confidentiality

You don’t want everyone to know about the offshore accounts you create and use to build financial reserves. While you expect some degree of tracking and reporting, it’s essential to do business with a bank that protects your privacy. The goal is to ensure that you control who can access your information and how it can be used.

Focus your attention on nations that make it easy for banks within their borders to provide the level of security that you desire. You’ll find that many bankers are happy to provide details about what type of information they can share under specific circumstances. If you are satisfied with the policies in place, that bank is worth exploring further.

3. Laws and Regulations Designed to Welcome Foreign Customers

What incentives are offered for offshore clients to deposit funds in offshore bank accounts? The answer is usually found in the banking laws that are currently in effect. Those laws set the stage for what banks can offer to customers who are citizens and residents of other nations.

Building on that foundation, banks can offer incentives that comply with those laws. Offerings can include varying account types, the schedule for bank fees, interest rates, and many other standard banking services. Review these carefully and determine if those incentives help set one bank apart from the rest.

4. Banking Staff Can Communicate in Multiple Languages

Communication is essential, even if it happens in a digital setting. You want to know that if you need to send an email or make a phone call, there is someone on the bank’s end who can communicate without any misunderstandings. For this reason, look closer at banks located in nations where the language you speak is in everyday use.

For North Americans, this typically means looking for an offshore bank site where English is the primary or secondary language. If you are found elsewhere in the world, knowing that languages like Spanish or French are also used will make a difference. It doesn’t have to be your first language, but it does need to be one that you can speak fluently.

5. Variety of Bank Account Options

What do you have in mind when it comes to using those bank accounts? Is the plan to tuck away some assets for emergencies? Maybe the idea is to build retirement reserves. You may even want a good way to set aside funds that your kids or grandkids will use for college.

Look for an offshore bank that offers different bank accounts according to what you need. From basic savings accounts to time deposit accounts or even offshore pensions, these are just a few solutions to investigate. Keep in mind that a greater range of accounts will make it easier to know where to turn if you decide to deposit funds for other purposes.

6. Investment Accounts Options

One of those other purposes may be to make the most of offshore investment opportunities. There are a variety of investments that may or may not be traded in your country of residence. Some of them may have the risk level and the potential returns that you consider ideal.

Having an offshore investment account allows you to secure and hold those assets with ease. Think of it as one more way to grow your wealth while protecting it at the same time.

7. Minimal Fees for Services Like Money Transfers

You’re no stranger to bank fees, but it is nice when you don’t have to deal with them. As you consider different offshore banks, take a close look at what is charged for various types of services that involve the use of your accounts. The goal is to see which bank has the most competitive fees for the services you are most likely to use.

For example, money transfer fees are something many offshore depositors encounter. Depending on how the transfer fee is calculated and how often you arrange transfers, the fees you incur can add up. If you opt for a bank that either does not assess a transfer fee or keeps it to a minimum amount, more of your money gets to stay in those accounts.

8. Secure and Simple Remote Account Access

Online banking and remote account access are not features of every offshore banking institution. Before making any assumptions, confirm that the bank provides online account access that you can use for most of your transactions. This eliminates the need to have a representative handle transactions on your behalf.

Keep in mind that online access must be secure. You’ll find that the best offshore financial institutions provide full disclosure about the security measures they take and what they mean for depositors. If you’re happy with both the function of the remote access and the safety measures in place, that bank may be perfect for you.

9. Easy to Buy and Save in Multiple Currencies

Many people open offshore bank accounts because they love to travel. If the bank makes it easy to designate different currencies for purchases, you are better positioned to take advantage of the day’s exchange rates. This could make your travel more affordable.

Don’t overlook that a bank that can save funds in multiple currencies provides another avenue for building wealth. If you believe that a favorable rate of exchange will reverse significantly during the upcoming term, simply change the currency type to one that is projected to remain more stable.

10. Strong Customer Service Ethic

There’s no doubt that you want to deal with a bank known for excellent customer service and support. Whether you are banking remotely or if you happen to be visiting the country and need to speak with a bank officer or employee, you know that you and your business are important. That’s not always true in some places.

This type of service makes it easier to resolve issues or get financial advice. If the bank you have in mind is known for placing value on its customers, take a closer look at what the institution offers.

Offshore Banks with Proven Track Records

Choosing an offshore bank with the best features requires investing time and effort into the search. Look for banks with proven records of success and longevity. Take your time, ask questions, and listen closely to the answers.

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THE BENEFITS OF ADDING ESG TO YOUR BANKING STRATEGY

Bank that has gone all-in on the environment and social commitments say it’s now a critical factor in running a good business. Financial services organizations serious about delivering on their lending and investment strategies related to environmental and social issues need to be just as serious about creating solutions to address catastrophic climate change and social inequity. In 2021, Minneapolis-based U.S. Bank created an environmental, social and governance (ESG) vertical for its fixed income and capital markets business as part of a strategic commitment to bridge economic and social gaps exposed by the May 2020 killing of George Floyd.

Within months of being hired to lead the new unit, veteran investment banker Marcus Martin and his team structured a first-of-its-kind, $30 million “racial-equity bond.” It is designed to ensure that all housing contracts from the bond’s proceeds go to developers who are Black, Indigenous and people of color (BIPOC).

U.S. Bank, with $554 billion in assets, teamed up on the private debt offering with Enterprise Community Partners of Columbia, Maryland, to support BIPOC developers building multifamily affordable housing. Enterprise, a nonprofit entity, owns and operates 13,000 affordable housing units.

“It was a great opportunity for us in our continued role as a trusted adviser to engage Enterprise with a very intentional focus on creating social-impact outcomes,” Martin says. “We were very proud to be a part of that. The client walked away with the exact financing they were looking for.”

Martin anticipates that other organizations will take a page from U.S. Bank’s initiative. “We expect this transaction will inspire other organizations, including corporations, municipalities, not-for-profits and more community development financial institutions, to issue similar bonds that address critical social challenges.”

According to US SIF, a nonprofit focused on sustainable and responsible investing, total assets in sustainable funds rose to $17.1 trillion in 2020, a 42% increase since 2018.

The part of ESG that attracts the most attention, Martin says, is the “E,” possibly because of the global focus on the Paris Agreement on climate change. But he and his team are fielding the most questions from clients about the “S” component of ESG, primarily because clients are not sure how to measure their success in the social sector.

Metrics matter, says Ivan Frishberg, first vice president-commercial banking for New York City-based Amalgamated Bank. The $6.6-billion-asset institution is among more than 150 banks that have created an alliance with the Partnership for Carbon Accounting Financials to assess and disclose the greenhouse gas emissions of their loans and investments. Nearly a quarter of Amalgamated’s loan portfolio is directed toward climate solutions, according to Frishberg.

Measuring the environmental impact of loans is not difficult, he says. “Like anything you are measuring, you have to decide to do it, you have to decide how to do it and you have to have systems that support it. … It’s not that hard, and it’s meaningful for our investors and our clients.”

If a client or a prospective client approached the bank about a potentially lucrative loan opportunity that flew in the face of its ESG principles, Frishberg says, the bank would not even consider it. But, he adds, the hypothetical scenario is essentially moot.

“We are blessed to be in a situation where clients with similar values and outlooks come to us because of our alignment,” he says. “We have a bounty of clients looking to solve the world’s problems, and looking to partner with us.”

Amalgamated, the largest union-owned financial institution, is one of the nation’s most progressive banks, so lending to a fossil-fuel concern would be a betrayal of the bank’s core values and strategic mission, Frishberg says. He’s heartened that progressive causes like social justice and environmentalism, which Amalgamated has long championed, are being integrated into the strategies of more traditional financial services organizations.

Frishberg offers this advice to banks and credit unions ready to go all in on ESG: “First, if it matters, then measure it – figure out rigorous and consistent measurement systems around your ESG priorities. Second, ESG is something that clients care about. The public cares about it. And the regulators, when it comes to climate risk, increasingly care about it.

“Think about this as central to what you are doing as an institution. And it should not just be a marketing initiative or an add-on activity. When we think about climate risk now, it is absolutely central to who we are and, across the board, ESG is critical to running a good business. The banking industry has come to fully accept that.”

Edmund Lawler is a BAI contributing writer.

Learn from thought leaders and gain ESG insights in the BAI Executive Report, “Banks are embracing their ESG future.”

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BANKRUPTCY AND INSOLVENCY: THE KEY DIFFERENCES YOU SHOULD KNOW

Did you know you can’t be bankrupt without being insolvent but can be insolvent without being bankrupt? The word “insolvency” has become a generic term for when a business cannot repay its debts. It can also mean when a company faces financial ruin. In either case, the result is the same – Insolvency. However, bankruptcy and Insolvency are very different, and having even the slightest knowledge of the two can help you make the right decision for your business.

While bankruptcy is the process of declaring personal Insolvency and seeking a personal discharge from creditors, Insolvency is reorganizing a business and its debts through a formal bankruptcy proceeding. You may think they are the same thing, but they are not. There are many similarities between the two processes, but some key differences should also be noted. In this article, we look at the key differences you should know.

Bankruptcy and insolvency difference

What is bankruptcy?

Bankruptcy is declaring personal Insolvency and seeking a personal discharge from creditors. This includes various legal procedures like the following: filing a petition, an examination of your income and assets, and any relief you may be entitled to. To qualify for bankruptcy, you must meet specific criteria set by law. Essentially, you need to prove that you cannot pay your debts. Learn more about bankruptcy through this website.

Reasons for going bankrupt

  • Job loss
  • Unexpected or high medical expenses
  • Excess or poor use of credit cards
  • Separation or divorce
  • Income reduction
  • Bad spending habits or bad budgeting
  • Foreclosure on homes
  • High cost of utilities
  • Student loans and
  • Credit card debt

What is Insolvency?

Insolvency is reorganizing a business and its debts through a formal bankruptcy proceeding. It should be noted that those who are not bankrupt can also face Insolvency. This can happen if your company cannot repay its debts and is on the verge of financial ruin. You can find more information about these basics through this website.

There are two types of Insolvency. They are;

  • Cash flow insolvency

This type of Insolvency refers to when you can’t pay a debt due to a lack of money. Cash flow insolvency may affect both individuals and businesses. It usually occurs when all other ways of resolving a debt payment have been exhausted. You can liquidate them and pay off your debts when you have assets. However, when these things run out, and there’s nothing more to liquidate, you can negotiate a payment plan with your creditors.

To decide what to do with this type of Insolvency, you need to take a cash-flow test. This lets you know if your assets are enough to repay your debts. If it’s not, you can decide to file for bankruptcy protection. Read through Lawrina to know when you’re exempted from bankruptcy if you live in this state.

  • Balance sheet insolvency

This is common for businesses where they use a balance sheet insolvency to determine whether they should file for bankruptcy or take steps to stay afloat. The company evaluates its outflows and inflows, and if the outflows exceed inflows, it might conclude that filing for bankruptcy is the way to go.

Interestingly, a business can be balance sheet solvent and cash-flow insolvent ( when liabilities are less than non-liquid assets). The reverse of this is also possible. A company can be cash-flow solvent and balance sheet insolvent ( more debts than assets). This occurs when its revenues can meet immediate financial obligations. Businesses that have long-term debts operate in this manner.

Reasons for Insolvency

  • Lack of financial information
  • Failure to separate personal and business accounts
  • Lack of budgeting
  • Defaulting payments
  • Lack of financial information
  • Failure to have a debt recovery in place
  • Over-reliance on one customer
  • competition

Key Differences between Bankruptcy and Insolvency

Bankruptcy is a personal process and can be filed by the person who owes the debt. Insolvency is a much more complicated process involving many different parties, such as creditors, debtors, and court officials. With bankruptcy, you seek to discharge your debts from your assets. If you file for Insolvency, you are not personally responsible for any of the debts incurred by the business. Insolvency can only be filed if no other options are available to pay off creditors.

Bankruptcy is an involuntary proceeding, and filing for Insolvency is voluntary on behalf of the company’s management. With bankruptcy, there is no chance of saving your business – it will be liquidated to repay those creditors who have lent money to your company. With Insolvency, there may be a chance of saving your company if it successfully obtains protection from its creditors through this process.

Bankruptcy will result in public notice or advertisement, whereas Insolvency does not. Bankruptcies are governed by federal law, whereas insolvencies can vary from state to state and country, depending on local laws and regulations.

Summing up

Bankruptcy and Insolvency

Bankruptcy is a process of declaring personal Insolvency and seeking a personal discharge from creditors. On the other hand, Insolvency is the process of reorganizing a business and its debts through a formal bankruptcy proceeding. Bankruptcy is typically done by an individual who owes money to creditors, while Insolvency is generally done by a company that owes money to creditors. The threshold for bankruptcy generally ranges from $150,000 to $1 million in debt, but insolvent companies can be allowed to file for bankruptcy even if their debt exceeds $1 million.

Though both bankruptcy and Insolvency are reorganization processes, they are not the same thing. Bankruptcy is when individuals seek relief from their debts through an out-of-court settlement procedure. In contrast, Insolvency is when a company seeks relief from its debts through an out-of-court settlement procedure. Bankruptcies are public records, while insolvencies are not publicly available records. Lastly, there are different consequences associated with each term: one may lead to criminal liability while the other does not.

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CAN YOU INFLATION-PROOF YOUR SAVINGS? 4 LOW-RISK WAYS TO GROW YOUR MONEY

As inflation continues to soar, you might be looking for ways to make your money work smarter, not harder. With the annual pace of inflation hitting a 40-year high, saving money in a typical bank account that earns close to 0% in interest may mean losing more money.

If you placed $100 in savings last year, after taking into account the current 8.5% jump in inflation and the current average savings account rate of 0.06%, that same $100 is worth closer to $91 today.

To be clear, your $100 is still sitting there safe and sound, but due to inflation, the value of each dollar is now less.

So, what can we do? Are there relatively low-risk ways to save to earn higher rates of return? Yes. Here are four strategies that can help minimize the impact of inflation on your savings.

1. Stash your money in high-yield savings accounts

Some newer, digital-only financial institutions or neobanks are offering higher savings rates of 2-4% — which isn’t outpacing inflation but is far better than average. For example, Current announced earlier this year a new high-yield savings account called “Interest” that provides users a 4% annual percentage yield.

Pro Tip: Consider these types of accounts for a savings goal in the next six to twelve months. Be careful parking your emergency funds here, as neobanks tend to be part of limited ATM networks and your money may be harder to access in a pinch. Also, make sure the neobank has FDIC insurance that can protect your savings in case the institution goes under.

2. Opt for bank accounts with sign-up bonuses

In an effort to lure new customers in today’s competitive market, some banks are offering sign-on bonuses and “welcome” perks for new checking account customers. For example, the Chase Total Checking account provides a $225 account bonus when you fund a new account via direct deposit.

Pro Tip: Be sure to follow any rules related to account minimum auto-deposits to avoid monthly fees. If you can’t meet these minimums, then the signup bonus may not be worth the cost of maintaining this account.

3. Consider I-Bonds

I-Bonds are a relatively secure government-backed investment sold directly to the public that tracks your cash alongside inflation.

The current I-Bond savings rate is 7.12% and is calculated using a fixed rate and an inflation rate that’s determined twice a year. These accounts are not as liquid as bank savings accounts. You have to stick with the account for at least one year. While you can withdraw your money after that, you risk forfeiting the final three month’s of earned interest by doing so. After five years, you can take your money out without penalty.

Pro Tip: Park cash here that you plan to use for medium-term savings like a home down payment you foresee needing in the next five years. Keep in mind that the limit is $10,000 per year. Any money you won’t need for five years or more may be able to afford more risk and might make sense to invest in the stock market.

4. Don’t overlook Treasury Inflation Protected Securities

Finally, TIPS are a popular bond instrument during periods of high inflation because its value follows the rate of inflation and adjusts twice a year.

As a government-backed bond, your investment will never lose its original value, even if inflation goes in the other direction.

TIPS are usually an add-on to retirement portfolios but you can avoid transaction costs by buying them directly from the U.S. Treasury Department’s website in five-, 10- and 20-year maturities.

Pro Tip: Go easy. Leave your emergency savings in an FDIC-insured savings account that’s super liquid and accessible. Consider TIPS only for some of your additional savings that you don’t anticipate needing for at least five years.

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6 REASONS FINANCIAL LITERACY IS ESSENTIAL FOR ENTREPRENEURS

Knowledge and skills that enable an individual to make effective and informed decisions regarding finances are known as financial literacy. Financial literacy is crucial for business owners if they want to successfully operate in the business world. Most entrepreneurs understand this concept, but still, there is a significant gap between their knowledge and the information they should have.

If they have a better understanding of the basics of accounting and finance, they will be able to grow their businesses rapidly.

The fact is that not every entrepreneur out there has a background in business, finance, or accounting. Due to this reason, lack of financial literacy can lead to major issues for their company, including mismanagement of capital, instability of financial resources, or incorrect decision forecasts. Entrepreneurs who lack financial knowledge or aptitudes cannot flourish their startups in a tremendous competition that dominates the market. For this reason, let us discuss seven reasons why financial literacy is crucial for entrepreneurs.

  1. Getting Established

In the early years of their start-up, most entrepreneurs are more concerned with attracting clients and customers. Hence, their main focus remains on product, sales, and marketing. In such times when the company is so customer-focused, who will manage the financial books and cash flow? For this purpose, hiring individuals who are certified public accountants can help you perform these tasks efficiently. Their financial literacy and bookkeeping knowledge can help you establish your business.

However, individuals must pass a CPA exam to become certified public accountants. But fret not, as some institutions offer CPA exam review courses to help you prepare for the exams. After obtaining the certification, you will have sufficient knowledge to handle the financial aspects of your business alongside other operational tasks. Hence, managing the finances and effective bookkeeping can help you establish your business.

  1. Financial Planning

Many entrepreneurs establish their businesses soon after they graduate. They mostly hire experts to assist them in inferring financial contributions to business cash flow and supporting them in planning out tax obligations.

But the entrepreneurs who come from a finance or accounting background accurately foresee how much funding they will require to inaugurate their startups. They establish strategies for future resource allocation, manage the cash flow, update the financial books, and oversee these processes accurately.

So instead of relying on business startup software or hiring someone else to handle financial matters, it is wise for entrepreneurs to take up financial aspects of the business themselves. But that is only possible if they have enough financial literacy to plan the company’s present and future finances.

  1. Scalability

All business owners require enough financing to launch and grow their firms subsequently. It is common to take credits and loans during the growth process of small businesses. At the time of contract with banks, private firms, or private investors, entrepreneurs are responsible for the success of their contracts. The reason is that business owners have to present all the financial stats and figures from the past year to predict future ROI. Banks, investors, and firms invest, give loans, or provide support in case the financial aspects of the company are sound. Hence, financial literacy will help entrepreneurs calculate past investment, net profit, growth prediction, ROI rates, and scalability possibilities.

Apart from that, when you understand the fundamentals of the financial tools that help operate the business successfully, you can offset long-term investment with quarterly budgetary findings and formulate an overall strategy. In addition, you will be able to handle matters like suppliers who bully you too much, customers who do not pay, and many more.

Thousands of entrepreneurs set up and inaugurate their small enterprises every year. Henceforth the real challenge for these businessmen is to gain scale. Profits are the actual source of the growth and success of these small businesses. But to scale a business sustainably and profitably, financial literacy is a must.

Entrepreneurs become able to take accountability for every euro, dollar, or pound and retain a sharp focus on cash flow and expenditures. These elements are vital for maximizing the chance of a small business’s survival.

By attaining knowledge about finance, you will easily deal with professionals and assure them about the integrity of your company’s accounts, thus saving both money and time.

  1. Control

Financially literate entrepreneurs are more likely to be in control of their enterprises solely. Knowing what profit and loss statements mean and what balance sheets are, they get a clear view of their company’s financial status.

This knowledge also facilitates them in making subsequently smarter business decisions.

Gaining a CPA or any other financial degree does not mean that you will have to handle all of the financial aspects of the company. But it is important for managing some of the business’s finances.

Pursuing the basics of accountancy will prepare you for unexpected challenges you may encounter on your journey inevitably. After becoming financially educated, you will have a chance to build a thriving company.

  1. Business Strategy

Almost all undergraduate finance programs incorporate coursework on business strategy. Those who remain passionate about moving to the corporate ladder should be mindful of updating, maintaining, and implementing a business strategy. A business strategy determines all the operational, marketing, and financial aspects of a business that are necessary to keep a business afloat.

Here, financial analysis is required to assess the stature of a business because it is associated with the competition, growth potential, and current expenses.

When candidates study business strategy in finance, it allows them to think about the possible paths to enter a new market. For instance, a new business can attempt to be a low-cost leader in the market or try to differentiate its services and products to justify high prices from its competitors. Such finance-based business strategies can help a business grow exponentially.

  1. Data-Driven Decision Making

Most finance degree programs have a rich mix of economics and statistics coursework. Expertise in these fields is what fresh entrepreneurs require to keep their startup company on track. Understanding statistical analysis can assist business owners in utilizing a large amount of data to enhance customer relationships and enter into international markets successfully.

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