Implementing Risk Management at MicroSave's Partner Microfinance Institutions
This note describes the implementation of risk management in MicroSave's Action Research Partner (ARP) organizations.The note states that risk management is at the core of the Basel II Guidelines, and essential to optimizing MFI performance. MicroSave and ShoreBank advisory services studied the current status of risk management in four ARP organizations. A toolkit for assisting MFIs in establishing a risk management function was developed based on the study, and field-tested at 3 ARPs. The test implementation involved the following steps:
- Identifying risks and risk drivers;
- Selecting quantitative and qualitative indicators for measurement of risk;
- Measuring risk and setting the threshold for MFIs' risk tolerance;
- Monitoring and institutionalizing risk management program.
The note states that MicroSave's risk management tools are dynamic and change as the MFI evolves through the feedback loop. Results of the pilot test indicate that rigorous application of the tools will help in early detection and management of risks, especially in new product development.
