Risk Management

Loan portfolio is the most important and largest asset for an MFI, as it generates income (interest and fees). The motivation for a client’s prompt repayment is the expectation to get a bigger loan with advancing cycles. Any outbreak of loan delinquency can quickly spin out of control and can cause havoc for the MFI.

Effective process mapping allows financial service providers to analyse and improve many important functions and activities within the institution. Process mapping can play a key role in optimising:

Proactive risk management is essential to the long-term sustainability of microfinance institutions (MFIs). This toolkit presents a framework for anticipating and managing risk in microfinance institutions with a particular emphasis on new product development.

Risk analysis and risk management strategies are critical to building and ensuring sustainable microfinance institutions. Operating risks are among the primary risks to address because they are internal, and are to a large part within the realm of management’s direct influence and control. This toolkit presents an overview of the issues that pose risks to MFIs in their operations.

The loan portfolio is the primary income-generating asset for an MFI and it is most commonly subject to material misstatements. Most MFI failures stem from the deterioration in the quality of the loan portfolio.