Microfinance Risk Management Handbook

This Handbook provides guidance for managers of CARE affiliated microfinance programs to develop a risk management system. It describes institutional structures, management systems, and internal controls that should be in place in all microfinance programs.

The Handbook outlines required and suggested policies and procedures for managing and governing MFIs in a way that minimizes the organization's vulnerability and maximizes the chances of fulfilling its potential. The objective of this handbook is to foster good management and accountability towards encouraging cost effectiveness, high portfolio quality, and minimal risk of loss or misuse of funds. The Handbook is divided into six chapters:

• First chapter presents a framework for conceptualizing microfinance risks;
• Next four chapters discuss the controls required to mitigate the four major categories of risks: institutional risks, operational risks, financial management risks, and external risks;
• Final chapter describes the accounting and other systems required for effective risk management.

At the end of most sections is a set of questions that can be used as a control checklist which can be useful for managers and board members in conducting a self-assessment of whether sufficient controls are in place to mitigate various risks.