Preparing Stress-Testing and Scenarios With Microvision

The COVID-19 pandemic has various negative implications for a microfinance institution's (MFI’s) operations. Clients that cannot repay their loans on time and moreover withdraw their deposits, could lead to major liquidity problems for an MFI. In addition, loan losses will reduce equity and may result in the institution’s bankruptcy.

Having a business continuity plan (BCP) in place that takes into account different scenarios and stress-testing would be a practical way to help management tackle the crisis and build institutional immunity but would also help investors, who need to receive confirmation of an institution’s preparedness and response to this crisis. A business continuity plan that can be drawn up using quickly prepared scenarios, including those that could arise in a crisis, could allow management to better understand the impact of the crisis on the institution. Such a plan would allow management to anticipate issues, so that measures could be put in place and appropriate risk-mitigation decisions taken (e.g. acceptable leverage could be determined, crucial human resources identified and safeguarded, liquidity managed).

This document explains how the Microvision tool can be used by MFIs to develop different scenarios and stress-testing, which are important elements of any business continuity plan.