Microfinance and HIV/AIDS: Risk Mitigation Strategies for MFIs in High-prevalence AIDS Markets

This note focuses on risk mitigation strategies for MFIs that operate in poverty stricken areas with high HIV/AIDS prevalence. It describes how operating in an HIV/AIDS prevalent environment may affect MFIs, provides a structure for MFI risk management, and suggests concrete mitigation strategies. It concludes with cost benefit considerations and discusses the advantages of taking a longer term view of the pandemic and of following related long term risk management strategies.

HIV/AIDS has a detrimental effect on poor families and on the MFIs that serve them. MFIs begin to experience deteriorating portfolio quality, reduced liquidity, and a shrinking client base, with more and more clients unable to repay their loans and withdrawing their savings.

MFI risk mitigation strategies when working in HIV/AIDS affected communities include advance planning on how to respond to clients in crisis, planning for reduced savings rates, monitoring for higher client dropout, staff absenteeism, and default rates, strengthening management information systems and adjusting loan loss provisioning. They also need to:

• Maintain a diverse portfolio;
• Have a long term mitigation strategy in place;
• Understand the local context;
• Choose an integrated approach;
• Mitigate personnel risks;
• Mitigate credit, liquidity and fraud risk.