risk management framework for microfinance institutions

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1、RiskManagementFrameworkforMicrofinanceInstitutions０．Introduction　　Themicrofinanceindustryhasbeengrostocontinue,giventheexistenceofmassiveunservedandunderservedmarket.FIsisstillnotastocontinuetoseekgrouchattentiontoinherentrisks.Increasingly,manyMFIsappea

2、rtoneglecteventhebasiccreditriskmanagementachievehighgroall,loalbusinesses.Manyoftheseindividualsareconsidered“not-bankable”bytraditionalmercialbanksastheymaylackcredithistoryandthereforecannotmeetminimumqualificationstogainaccesstocreditfrommainstreamme

3、rcialbanks.Microfinanceinstitutions(MFIs)addresstheirtargetcustomers’lackofcredithistorybyusingadetailedprocesstoevaluateborroethodenablesMFIstosuccessfullyevaluatetheirpotentialclients,itistimeconsumingandnoteasilyscalableorefficient.FIscansupportthecre

4、ditevaluationprocessandimprovetheirportfolioquality.ThisarticlegivesanovervieicrofinancerisksandriskmanagementframeplementedbytheMFIs.　　1.MFIsRisks　　RiskinthecontextofMFIsisthepossibilityofanadverseeventoccurringanditspotentialfornegativeimplicationsonth

5、efutureineofanMFIordeviationfromtheoriginalsocialmissionofanMFI.LookingatthemissionstatementsofdifferentMFIsglobally,theirmainobjectivecanbesummarizedas:providingfinancialreliefforasignificantproportionofthepoverty-riddenpopulationintheregionsinaintainin

6、gfinancialself-sufficiencyinordertoprovidesustainedandefficientservicestotheclients.ThismeansMFIshavebothsocialmissionandfinancialreturnobjective.Strikingabalancebetofrisks.　　Thesourcesoftheserisksincludeincreasedpetitioninthemarket,additionofnestructure

7、s,shifttoindividuallending,increasedscaleofoperations,andgeographicalexpansionandeffortstodeepentheirreach.Tobetterexplaintheserisks,theyarecategorizedintothreenamely;financialrisks,operationalrisksandstrategicrisks.　　1.1FinancialRisks.　　Financialrisksof

8、MFIsarebroad.Theyinclude;　　CreditriskistherisktoearningsorcapitalduetoborroentofloanobligationsasentobligationstoMFIse.g.banksandserviceagencies.Creditriskincludesbothtransactionriskandportfoliorisk.Transactionriskrefersto