Managing Risk and Creating Value with Microfinance

This report brings together the results of an eight-part series of presentations by leading experts in issues directly related to microfinance institutional sustainability. It is intended for MFI board members, managers, and staff members as well as for government regulators, supervisors, and donor staff members.

The first four chapters of the report include topics on risk management such as, risk management systems, good governance, interest rates, and microinsurance. The last four chapters cover issues related to new product development and delivery methodologies, namely, housing microfinance, microleasing, disaster preparedness products and systems, and new technologies. Lessons include:

• Successful MFIs develop strong internal information systems to mitigate the risks related to liquidity, internal fraud, and product development;
• Although no one governance structure is universally applicable to all MFIs, the board of directors is the pivot point that connects all concerned with good governance;
• Evidence suggests that interest rates reflect the high costs of delivering small loans to a large number of clients;
• Microinsurance industry can play an important role in the risk management and consumption smoothing of low-income households;
• Progressive housing products are demand-driven with efficient service and ongoing follow-up;
• MFIs planning to offer long-term lending for equipment should consider microleasing as an alternative;
• Governments, donors, and MFIs have interdependent roles to play in the recovery process post any disaster or conflict;
• MFIs are adopting a number of different technological innovations to lower the cost of delivery.