Paper
Managing Microfinance Risks: Some Observations and Suggestions
Need for embedding risk management into institutional culture and values
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44 pages
This paper outlines different categories of risk that MFIs face, and highlights the increasing need for risk management in microfinance. It also suggests principles for risk management in microfinance, with a focus on agricultural microfinance.
Risk is an integral part of financial intermediation, but systematic risk management is not as widespread in microfinance as it should be. Rapid growth has changed MFIs’ risk profiles, but most MFIs continue to seek growth without much attention to attendant risks. MFIs are also increasingly interested in agricultural microfinance. Financing agriculture is more risky than financing trade, industry or other non-agricultural enterprises. MFIs interested in agricultural microfinance should:
- Pay more attention to their internal structures and capabilities;
- Build institutional capacity to effectively deal with risks associated with financial services provision to poor and low-income households;
- Ensure that risk management becomes part of institutional culture and value system;
- Pay attention to issues related to cognitive biases in executive decision-making behavior.
- Pay more attention to their internal structures and capabilities;
- Build institutional capacity to effectively deal with risks associated with financial services provision to poor and low-income households;
- Ensure that risk management becomes part of institutional culture and value system;
- Pay attention to issues related to cognitive biases in executive decision-making behavior.
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