Estudio: Presencia de las gestoras de fondos en las redes sociales
Position Paper - FINAL v1.0
1. PositionPaperMarch 2015
Karla Brom
The RIM’s mission is to contribute to the global development of awareness,
best practices, and appropriate standards for risk management in microfinance.
This paper describes the RIM’s Risk Management Graduation Model (RMGM),
which provides an invaluable starting point for all stakeholders with an interest
in improving risk management in the microfinance sector. A principal goal of
the RIM is to change the approach to risk management and its central driving
question from “What is risk management and how do you do it?” to “Why is risk
management important to my organization and clients?” The RMGM has been
designed with this goal in mind.
Toward a Consistent and Appropriate
Risk Management Framework for MFIs
The Risk management Initiative in Microfinance (RIM) is a collaboration of organizations
with a vested interest in raising the standards of risk management in the microfinance
industry. Since its formation in early 2013, the RIM has gained momentum and is now
at a critical juncture and seeks to expand its outreach throughout the microfinance
sector. To that end, the RIM has created the Risk Management Graduation Model
(RMGM). This framework has been reviewed by risk management experts with
years of experience in the microfinance sector. As of January 2015, the RMGM has
been pilot tested with fifteen MFIs in fourteen countries to test the consistency and
coherency of the framework in practice. Based on the results of these pilot tests, a
diagnostic tool will be developed which will allow an MFI to evaluate its gaps vis-à-vis
the RMGM framework.
The RMGM and diagnostic tool are not a comprehensive guide to risk management
for MFIs, but they do provide an invaluable starting point for all stakeholders with
an interest in improved risk management in the microfinance sector. The RIM also
seeks to:
• Make an inventory of methodologies and tools currently offered to MFIs.
• Harmonize processes and policies related to risk management in MFIs.
• Propose a scalable framework, founded on risk management approaches adapted
to a particular MFI’s size, complexity, and structure, as well as the economic
significance of its activities and risk profile.
• Send a common message to stakeholders on the industry’s vision and strategy for
risk management.
• Make additional tools and resources publicly available.
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The RIM arose from the recognition that there
is a great and growing need for an integrated
risk management approach in the microfinance
sector. The RIM’s mission is to contribute to
the global development of awareness, best
practices, and appropriate standards for risk
management in microfinance.
MFIs that take the latter approach understand
why risk management is important and why it
needs to be formally integrated into the culture,
policies, procedures, and processes of their
organizations, and they can ultimately figure out
how to implement risk management in the most
appropriate way for their own institutions.
Risk Management and Microfinance Today
For the past decade, the microfinance sector has been growing and expanding rapidly in a
variety of ways—in geographic reach, the number of clients served, the number and size of
loans, the types of products and services offered, and funding sources (including deposits).
The visibility of the sector has also increased, as demonstrated by Muhammad Yunus receiving
the Nobel Prize for his work with Grameen Bank as well as other high-visibility developments
such as the IPO of Compartamos, the success of M-Pesa in Kenya, and recent events in Andhra
Pradesh, India. This visibility has led to more scrutiny by impact investors, academics, politicians,
and regulators and has spawned increased regulation of a sector that used to operate largely
outside of formal banking regulation.
Along with growth and expansion have come crises and failures, and perhaps the most marked
examples of failure have been the levels of over-indebtedness of clients in countries where
microfinance is growing rapidly. The recent switch to emphasizing financial inclusion, rather than
simply microfinance, involves a focus on reaching rural poor and on agricultural finance, which is
considered an antidote to over-indebtedness since the focus is on reaching past densely populated
urban areas where most MFIs already operate. The desire to reach scale and to reach past cities
has led to an increased emphasis on mobile money and branchless banking, which usually does
not include an assessment of the prerequisite risk management needs to protect the MFI and
its clients. On the positive side, the emphasis on financial inclusion has also stressed consumer
protection, financial literacy, and adherence to social performance objectives and measures.
Amid this growth and expansion there have been increased requirements—from regulators,
investors, and microfinance networks and associations—for formalized risk management. The
approach to risk management capacity-building for MFIs to date has been piecemeal and
uncoordinated. Product development and growth—especially with the provision of savings
An important goal of the
initiative is to change
the approach to risk
management and its
central driving question
from “What is risk
management and how do
you do it?” to “Why is risk
management important
to my organization and
clients?”
3. 3
products and mobile banking—has typically eclipsed the establishment of a strong and
integrated risk management framework in MFIs.
According to a recent study by the MIX Market, approximately 58 percent of MFIs report having
a risk manager or a team dedicated to risk management, while 48 percent report having a risk
management committee at the board level. Seventy-seven percent reported having an internal
auditor or a team dedicated to internal audit (though the majority still report to the CEO, which
is not best practice), and 63 percent report having an audit committee at the board level.1
We are at a stage in the microfinance sector where most stakeholders are aware of the
importance of more formal risk management in MFIs, but there is not yet a full understanding
of what that means in practice. For the moment, a “checklist approach” guides risk
management in MFIs—merely “checking off” the completion of each requirement, such as risk
management policy, risk manager, risk committee —without any real understanding of how
a risk management function works and how a formal risk management culture is integrated
throughout the organization. This is largely the result of MFIs taking a reactive approach,
merely responding to risk management requirements from regulators or funders rather than
proactively identifying and understanding risk management gaps themselves.
Risk Management from Three Perspectives
All stakeholders in the microfinance sector have an interest in seeing improved risk management
in MFIs, but each of them brings a different understanding and perspective to the issue. The
RIM’s activities will engage MFIs, investors, regulators, and MFI networks and associations.
The MFI Perspective
During the past decade, MFIs worldwide have begun a transformation from their status as
NGOs to becoming non-banks and ultimately MFI banks. Each stage of growth represents
not only an increase in the number of clients served or types of loan products offered, but
also, typically, a greater access to commercial funding sources in the forms of debt, equity,
or deposits. This transformation may also feature more sophisticated front offices or payment
systems, while back offices often lag behind in sophistication.
In their initial stages, MFIs focus on credit risk and the operational risk management processes
required to administer their loan portfolio. This focus makes sense given that the loan portfolio
is the main business of MFIs. However, operational risk management extends beyond the
credit process and as MFIs grow—in number of employees, loans, clients, and funding
sources—other areas of risk management require attention as well.
1. Micol Pistelli, Stephanie Geake, and Adrian Gonzalez, Measuring Governance in Microfinance: Initial Findings from a Pilot
Project, Microfinance Information Exchange, April 2012, retrieved February 13, 2015, from http://www.themix.org/publications/
microbanking-bulletin/2012/04/measuring-governance-microfinance.
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With greater access to commercial funding sources has come increased focus on risk
management in MFIs, mainly to ensure that investors’ funds are protected (i.e., the impetus
for risk management is coming from the investor, not the MFI). Risk management capacity
building is typically provided by way of technical assistance for a particular investment, and
it is often provided ad hoc and in one specific risk area (e.g., credit, operations, financial
risk), according to what funders and MFIs think needs the most development. Rarely do
stakeholders address integrated risk management, and often the risk definition and approach
differs from one technical-assistance provider to the next.
The Investor and Global Network Perspective
Investors recognize that it is in their best interest as well as the best interest of MFI clients that
MFIs have developed risk management systems. A significant amount of the risk management
technical assistance that MFIs receive is actually financed by technical-assistance facilities
attached to specific investment funds. However, investors are not entirely objective third parties
when it comes to risk management, nor do they have a thorough understanding of what an
integrated risk management framework might look like and how it might grow and evolve in an
MFI over time. Lacking any best practices available in the sector, they may be tempted to look
to the Basel Committee on Banking Supervision for guidance and, as mentioned below, Basel
regulations require substantial distillation in order to understand what is applicable to MFIs.
Global networks have a vested interest in seeing improved risk management in their member
MFIs, and a few of the networks such as Opportunity International and FINCA have instituted
their own internal risk management frameworks throughout their affiliated institutions. This
can have an important demonstration or spillover effect in countries where those MFIs are
prominent, but the approach is still proprietary. This leaves the industry with a need for a
publicly available framework.
The Regulatory Perspective
Regulators are also driving the increased focus on risk management, but their interest and
resources (both financial and human) vary significantly from country to country. Regulation
and its application can be politicized, so it is not always the best starting point for evaluating
risk management best practices. Regulatory reporting requirements are often focused on
aggregating data across the financial sector, and not managing risk, so they don’t provide
insights into key risk management measures.
To date, the Consultative Group to Assist the Poor (CGAP) has been the main advocate for
the microfinance sector, primarily by pointing out how microfinance activities differ from those
of large commercial banks and advocating for activity-based prudential and non-prudential
regulation of microfinance activities, rather than applying banking regulation to MFIs. Initially,
CGAP also provided detailed outlines of microfinance regulation by country, but since 2009
it has focused on working within the Basel Committee on Banking Supervision (BCBS) to
recommend how BCBS guidelines can be adapted to regulate microfinance institutions. Risk
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management is only one of the areas covered by bank regulation, but regulatory requirements
are often the driving force behind risk management implementation in MFIs, so it is important
that the microfinance sector has input on how risk management regulation is interpreted. The
RIM could therefore play an important role with the workstream on financial inclusion.
The Boulder Microfinance Training Program has also targeted regulators for over ten years and
has encouraged them to complete its courses, especially the course on policy and regulation for
financial inclusion. In this way, regulators are receiving a consistent message about what areas
are important for them to focus on to protect stakeholders and advance financial inclusion goals.
In East Africa, regulators have taken a graduated approach to regulating MFIs for years now.
They require that MFIs either evolve from one tier level to another within a certain length of
time or that they remain in one tier permanently. Sitting within these tiers are NGOs, non-bank
financial institutions (which are not licensed to take deposits), and MFI banks.
The RMGM Approach: A Value Proposition
Given the rapid growth in the number of MFIs globally, as well as the growth in balance sheets
and the complexity of products and payment systems, it is imperative to make available a set
of consistent risk management definitions, standards, and tools for the entire sector. The RIM
was established with the recognition that MFIs of all sizes and complexity would benefit from
access to these tools, especially Tier-2 and Tier-3 MFIs looking to chart a course for their risk
management development.
The starting point of the RMGM is to explain how risk management for MFIs is similar to that
of banks, and how it is different. This exercise effectively prescreens which elements of the
Basel regulations are most applicable to MFIs, rather than leaving MFIs, investors, and even
regulators floundering to adapt very sophisticated Basel standards to the microfinance sector.
In this alone, the RMGM provides a valuable service.
Next, the RMGM identifies different tiers of MFIs, recognizing that smaller and simpler MFIs
will not require the same degree of formal risk management as larger and more complex MFIs.
This is also a very valuable approach since MFIs are often bombarded with requirements, yet
don’t understand how they can integrate those requirements into their existing framework.
To determine which tier a given MFI belongs to, and therefore what level of risk management
is appropriate, the RMGM uses MicroRate’s globally accepted classification system as a
starting point.2
MicroRate’s tier system focuses mainly on easily measurable factors such as
sustainability, size, and transparency. Other factors specific to the MFI in question should also
be assessed. These include institutional complexity, number of product offerings (especially
2. MicroRate, “Microfinance Institution Tier Definitions,” April 2013, retrieved February 13, 2015, from http://www.microrate.com/
media/downloads/2013/04/MicroRate-White-paper-Microfinance-Institution-Tier-Definitions.pdf.
6. 6
whether the MFI mobilizes deposits), and strategic and institutional support from a regional
or global network. For example, for a small or unprofitable MFI in a regional or global network
that supports the solid, responsible future growth of its members by strategically mandating
and supporting institutional development of top-tiered risk management structures early on
in their development, membership may mean being categorized in a higher tier than it would
be if only the MicroRate definition was used. Tier categorization must be applied within the
contextual lens of the MFI under consideration.
Three Lines of Defense
Another useful way for MFIs to view the role of risk management in their evolving organization
is to follow the concept of the “Three Lines of Defense,” which the RMGM also captures. The
main operations of these lines of defense and their areas of focus are detailed in Table 1.
Executive Committees Risk Management Committee Audit Committee
Business Line Operations
1st Line of Defense
Risk Management
2nd Line of Defense
Internal Audit
3rd Line of Defense
Real-time operational
focus:
• Embeds risk
management framework
and sound risk
management practices
into standard operating
procedures
• Monitors risk
management
performance in
operations
• Accountable for
effectiveness of risk
management in
operations
Real-time monitoring,
management, and review:
• Develops and implements risk
management framework—
policies, systems, processes,
and tools
• Ensures that framework covers
risk:
ംം Identification
ംം Measurement
ംം Limits and policies
ംം Mitigation
ംം Monitoring
ംം Revision of policies and
procedures
• Exercises delegated authorities
• Proactive—stress testing and
scenario planning
Independent review
focus:
• Reviews effectiveness of
risk management
• Confirms level of
compliance with internal
policies and procedures
• Recommends
improvements and
enforces corrective
actions when necessary
Table 1. The Three Lines of Defense
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The three lines of defense emphasize that the
primary responsibility for risk management lies
with the business lines. So in a smaller MFI
(classified in Tier 3), risk management is usually
done informally by the business line. As the MFI
grows and enters the higher tiers (Tier 1 and Tier
2), the risk management function should formalize
and specialize accordingly. The business line is still
primarily responsible for risk management, but there
is the addition of an audit function, with a committee
to ensure that policies and procedures are being
followed. In some Tier-2 and in all Tier-1 MFIs, there
should be a separate and formal risk management
function, as well as a risk management committee
of the board. In practice, the majority of Tier-1 and
Tier-2 MFIs do not have a fully functioning formal
and integrated risk management system; the
RMGM will help those MFIs identify where gaps still
exist. Risk management is a dynamic process, so
even the largest and most complex organizations
need to consistently review, evaluate, and improve
their risk management capabilities.
The RIM’s Risk Management House
The risk management
function does not
replace the business
line’s responsibility,
but rather enhances
it by monitoring
and analyzing risks,
recommending risk
management strategies,
and preparing stress
tests and scenario
plans.
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Constructing and Expanding the Risk Management House
The RMGM describes a risk management infrastructure that should continue to grow and
evolve as the MFI grows and evolves. Much as a family may start out with a small and
simple house when it first begins and then, as it grows, continue to maintain the house while
also making additions and improvements, the RMGM looks at different components of risk
management as it would the construction of a house that is thereafter continually improved.
The Foundation
Before anything else, a house must have a foundation. Smaller houses may have smaller
foundations that are not capable of holding a big load, but the foundation must exist before the rest
of the house can be built, and then it must be maintained and reinforced as additions are made.
The foundation of the RMGM is comprised of the following:
Risk Governance – The board and senior management set a risk appetite for the MFI in line
with its financial and social objectives. If the MFI pursues sustainability objectives, it is more
likely that it will also achieve its social objectives (social objectives can vary among MFIs). In
risk management, the focus is on identifying potential threats to the MFI’s strategy that could
come from external events (stress testing and scenario planning) and also creates a set of
Board Senior Management Risk Management Function
Approve strategy, goals,
and objectives and provide
oversight to assure these are
implemented.
Propose strategy, goals,
and objectives and
implement when approved.
Propose and monitor
scenario plans and stress
tests.
Approve risk indicators and
limits and provide oversight to
assure that risk taking remains
aligned with risk appetite.
Propose risk indicators and
limits and implement when
approved.
Propose and monitor risk
indicators and limits and
implement when approved.
Approve social performance
targets and provide
oversight to assure these are
implemented.
Propose social performance
targets and implement
when approved.
Coordinate with SPM
function to monitor targets.
Approve risk policies and
provide oversight to assure
they are implemented and
revised as necessary.
Propose and comply with
risk policies and implement
when approved.
Propose and comply with
risk policies and implement
when approved.
Table 2. Risk Governance Responsibilities
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policies, procedures, and processes to ensure that risk management is in line with risk appetite.
As an MFI evolves, risk management is handled by committees (e.g., the risk management
committee, the asset liability committee or ALCO, the credit risk committee) rather than by
individuals in coordination with the CEO. If the MFI is part of a larger network, risk governance
may be administered according to a governance system laid out by that network.
Strategy – The board and senior management create and approve a business strategy that
advances the financial and social objectives of the MFI, keeping in mind the environment in
which the MFI operates and the MFI’s risk appetite. Strategy is implemented and operationalized
through annual plans and budgeting, which are reviewed and approved by the board.
Risk Culture – The board and senior management
set the tone for the way the organization is run and
what kind and what level of risk is acceptable in
order to grow and achieve sustainability. Emphasis
is placed here on transparency, financial literacy,
and consumer protection to ensure that products
are fairly priced and that microfinance customers
understand them. MFIs are in business to provide
financial products and services that are appropriate
for their clients, not to make money by charging
rates that the market will bear, or by taking risks
with foreign exchange or interest rate positions. In
other words, the treasury should not be seen as a
profit center. If the MFI is part of a larger network,
the risk culture is usually expressed by that network
and communicated through all member MFIs.
Internal Control – The MFI establishes a strong and targeted set of ex post controls to ensure
compliance with policies and procedures. This will include a separate and independent audit function
(even if that function is only one person) reporting to the board or to the audit committee of the board.
Management Information System (MIS) – An MIS is able to collect data and produce reports
that facilitate decision making. The complexity of this system will increase as the size and
complexity of the MFI increases, but the basic system must ensure accuracy and timeliness of
data, and the accuracy and timeliness of reporting. The system must have adequate firewalls to
protect it from fraud or unintentional changes. If the MFI is part of a larger network, that network
may provide and maintain the MIS, which, depending on local conditions, can provide benefits
but also pose a set of challenges.
The Floor
A floor of strategic risk management is laid on top of the foundation, and provides a
connecting surface for the different risk management areas. Strategic risk management has
two principal elements:
All of these components
of the risk management
“foundation” are
essential and need
to be continuously
improved and thereafter
maintained for the house
to remain standing and
be suitable for future
home additions.
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Ongoing Monitoring of Financial, Social, and Risk Indicators – This process ensures that the
strategy is being implemented as agreed upon and approved in the annual plan and in accordance
with risk appetite. This includes examining and understanding all significant deviations from the plan;
it is not just an exercise in expense control or achieving loan disbursement targets. An important
distinction between MFIs and banks is that MFIs have an explicit social mission, so monitoring and
managing social performance indicators needs to be coordinated with risk management. If there
is a social performance management (SPM) function in the MFI, it will coordinate closely with the
risk management function to ensure that social performance targets are being met. If there is no
separate SPM function, the business will work with the risk management function to communicate
social performance targets and track indicators. A failure to adhere to social performance goals and
objectives would be equally damaging to the MFI as a failure to achieve financial objectives.
Stress Testing and Scenario Planning – The strategic plan is designed and implemented
at a certain point in time, assuming that the internal and external environment remain static.
An essential role of strategic risk management is to look forward and anticipate how different
elements may change, how those changes could negatively affect the MFI’s operations, and
how the MFI should prepare for changes to limit that negative impact. Scenario planning
especially involves inputs from all areas of risk management.
The Pillars
The next part of the house is the pillars, which provide the framework for the house. If the
pillars are weak, the house will be weak. In the RMGM the pillars are the main risk categories
for a financial institution. All of them work together to support the roof and keep the structure
in place. A weakness in any one of them can lead to a weakness in the others, and ultimately
to a potential collapse of the whole structure. The RMGM identifies three pillars:
Credit Risk Management – This pillar is made up of the policies, procedures, and
processes that limit losses to the MFI due to non-repayment by a client or other
counterparty. Credit risk management is handled at the transaction level through
processes that ensure application, approval, and disbursement of loans in such a way
that clients receive the appropriate products and thus will be the most willing and able to
repay. At the portfolio level, credit risk management refers to procedures and processes
(such as limit setting and monitoring) to guarantee portfolio diversification. Because
repayments are an important source of funding, a failure of credit risk management can
have important liquidity implications for the MFI.
Financial Risk Management – This involves the policies, procedures, and processes
that limit losses to the MFI due to mismatches in the terms (currency, repricing, and
repayment) of its assets and liabilities. The supply and cost of funding will change with
market forces beyond the control of the organization, and financial risk management is
focused on limiting the MFI’s exposure to those risks. An important distinction must be
made between market risk in a bank and financial risk in an MFI. In a bank, market risk
relates largely to the change in the value of assets in the bank’s trading portfolio, which are
marked to market daily and therefore lead to earnings volatility. Financial risk in an MFI is
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largely related to changes in the value of assets and liabilities in the banking book which
are typically reported quarterly (according to Generally Accepted Accounting Principles,
or GAAP). The most important financial risk in an MFI is liquidity risk. Capital adequacy—
whether designated by company law, investor requirements, microfinance, or banking
regulations—is also a key element of financial risk management.
Operational Risk Management – This consists of the policies, procedures, and
processes that limit losses to the MFI due to a failure of people, processes, or systems.
This is the most all-encompassing risk management area since it touches on all aspects
of the business. At minimum, operational risk management should detect and prevent
frauds; and ideally, operational risk management make processes more efficient so
that operating expenses are decreased and sustainability increased. Operational risk
will provide:
• A well-selected, developed, and retained workforce
• An MIS which is consistently maintained and improved
• Policies and procedures which are reviewed at least annually and updated to reflect
current conditions
A failure of operational risk management can mean that data flowing through systems is
incorrect and/ or untimely, resulting in incomplete information for decision making, or it
can mean staff are undertrained and overburdened, thus more prone to making mistakes.
As with the components of the risk management foundation, the risk management pillars
need to be continuously maintained, and will certainly need to be strengthened and improved
as additions are made to the business. As the MFI grows in size and complexity, the pillars
will include more formal policies, procedures, and processes that reflect the additional level of
risk taken and that should be reviewed at least annually, certainly every time a new product
or funding source is added.
The Roof
Finally, the roof of the house represents the
overarching goal of the MFI, which is to attain
its double bottom-line objectives sustainably. A
house with a weak roof is not very valuable—if the
roof is weak or leaking it may collapse and ruin
the whole structure. Social performance objectives
must go hand in hand with stable earnings. Thus
the achievement of stable earnings along with
social performance objectives is the hallmark of
good risk management.
The goal of a sound
and integrated
risk management
infrastructure is
to integrate the
components of the
“house” to provide
support to the MFI’s
missions and objectives.
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Additional Resources and Final Considerations
The Diagnostic Tool
As a concrete application of the framework approach, the RIM will provide a diagnostic tool that
will help situate MFIs within the risk management spectrum so they can understand their current
status and can use the tool to guide their actions as they evolve into a more complex MFI. This
tool will also be invaluable since it offers a dynamic approach to risk management assessment
rather than a one-time-only analysis of risk management capabilities.
Graduation Model Knowledge Base
As a final step, the RIM plans to offer a Graduation Model Knowledge Base (or Knowledge
Base for short) which will include strategies for calculating risks, things to watch out for, and
sample policies and reporting templates, which offer concrete guidance on how to implement a
dynamic and integrated risk management framework once the MFI has chosen that course of
action. This Knowledge Base will be dynamic, with feedback and inputs from risk management
experts, and an initial version is targeted for completion at the end of 2015. An additional
resource that the RIM is planning for is a database of risk management experts that includes
their areas of expertise.
Collective Advocacy
The RIM is a living and breathing initiative with a framework and diagnostic tool that will
be refined and adjusted over time. As such, members of the RIM can play a valuable role
in collaborating with regulators as the industry advocates for MFIs. Collaboration can be
done at the country, regional, and global level through microfinance associations and in
coordination with the workstream on financial inclusion of the BCBS. This approach will
ensure that experts in risk management for MFIs shape the discussion as MFI regulation of
risk management evolves.
The RIM can also educate microfinance investment vehicles (MIVs) and global microfinance
networks on a reasonable set of expectations for risk management in their investee or
member MFIs. They might advocate a standardized set of risk reports, which would
then alleviate pressure on MFIs who are currently reporting in several different formats to
different stakeholders.
Comparing the RMGM to Other Frameworks
BCBS Guidelines – Banking regulation as promulgated by Basel is typically focused on
protecting against systemic risk—the failure of one banking organization leading to the failure
of the overall financial system—and protecting depositors, who are often the largest providers
13. 13
3. Basel Committee on Banking Supervision, Microfinance Activities and the Core Principles for Effective Banking
Supervision, Bank for International Settlements, August 2010, retrieved February 13, 2015, from http://www.bis.org/publ/
bcbs175.pdf.
of capital to a bank but who have no governance role. MFIs typically do not pose a systemic
risk, so they fall outside of the scope of much of the Basel guidelines. Basel regulation regarding
deposit-taking institutions has been distilled for the MFI sector in the publication Microfinance
Activities and the Core Principles for Effective Banking Supervision.3
It is important to note
that in all of the Basel regulations, a large part of the guidance is provided to regulators and
supervisors and not to financial institutions.
Basel II and especially Basel III (which is focused on addressing weaknesses uncovered
in the wake of the global financial crisis) are designed primarily for “internationally active
banks,” and to a lesser extent for domestic systemically important banks, and are not
designed for MFIs or to promote financial inclusion. Basel regulations related to capital
adequacy ratios and liquidity requirements are most applicable to MFIs, but still need to
be modified to reflect the distinct features of microfinance. The majority of MFI assets are
loans that cannot easily be sold for cash, which means that liquidity requirements need to
be evaluated differently. On the other hand, the relationship between the MFI and its clients
is typically more developed than in formal financial institutions, and this may change the
way regulators view default risk.
The RMGM framework defines two big distinctions
between banks and MFIs: An obvious one is that
MFIs are explicitly double- and triple-bottom-line
organizations. The second distinction is that MFIs
are in business to provide financial products and
services that are appropriate for their clients, not to
make money from taking positions on FX or interest
rate movements. MFI banking activities are limited to
making loans and taking deposits, and holding an
investment portfolio to earn some interest from the
liquid assets they hold. Basel banking supervision,
especially since the financial crisis of 2008, is largely
focused on monitoring and limiting the risks in
the trading portfolio, and therefore much of it isn’t
applicable to MFIs. The message must be stressed
very strongly that MFIs should not expect to make
money from taking positions on FX or interest rate
movements, since that requires an entirely separate
set of systems and expertise which do not contribute
to the overall goal of financial inclusion. The goal of risk
management in an MFI is to minimize potential losses
due to the risk-taking activities of the organization.
MFIs should not expect
to make money from
taking positions on FX or
interest rate movements,
since that requires an
entirely separate set of
systems and expertise
which do not contribute
to the overall goal of
financial inclusion.
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IFC Risk Management Scoring Tool – The IFC has a tiered approach similar to the RMGM’s
when evaluating the risk management capabilities of MFIs. It uses this approach both when it
is considering investing in an MFI and when it is evaluating the technical-assistance needs of
MFIs in its portfolio. The main difference between the RIM approach and that of the IFC is not
so much in the definition of terms but perhaps in the target audience of MFIs and in the way
that the tools are explained and made available.
The RMGM is designed primarily for less sophisticated MFIs—“less sophisticated” from a risk
management perspective—to give them an idea of their current risk management status and
what areas they need to improve as they grow their business and their outreach. It can also
identify risk management gaps in MFIs that are already offering a complex range of products
and services. While the results of the risk management diagnostic can be used by investors
and technical-assistance providers, the main purpose is to help the MFI understand its own
abilities and where and how those abilities need to be strengthened to reach financial, social
performance, and outreach goals. The IFC tool, on the other hand, is more technical and
sophisticated, for use by IFC experts. Target MFIs are typically Tier-1 and Tier-2 MFIs that are
in the IFC portfolio.
CGAP Microfinance Consensus Guidelines on Regulation and Supervision – The CGAP
consensus guidelines on regulation and supervision are an invaluable accompaniment to the
RIM. They represent inputs and buy-in from regulators and microfinance experts worldwide,
which means the concepts are already well accepted. The target audience is regulators and
the broader public, while the target audience for the RMGM and diagnostic tool is MFIs,
their investors, and founding networks. The RMGM and the consensus guidelines deliver a
similar message to different audiences, but both help translate complex regulatory issues
into tangible and concrete risk management actions. This is enormously important for the
microfinance sector, especially as it continues to grow and expand into ever more complex
products and delivery systems.
Microfinance Stakeholder Uses: A Vision for the Future
The RIM has been active in developing and promoting risk management standards for
the microfinance sector for the past two years. The initiative’s Founding Members now
seek to expand their collaboration to a broader range of stakeholders throughout the
microfinance sector.
While the RIM is a specific initiative focused on risk management, MFIs and others should
be encouraged to use it as part of a greater “ecosystem”—for example, using RIM in
conjunction with the SPTF/SMART campaign recommendations, or in conjunction with
product development and outreach strategies to help identify risks posed by new products
or technologies.
16. 16
The RMGM, Diagnostic Tool, and Knowledge Base – The RMGM and diagnostic tool will
provide a publicly available and easy-to-understand explanation of what an integrated risk
management infrastructure will look like over time. As such, MFIs can use it to evaluate where
they currently stand with risk management compared to suggested best practices, and to
chart a path for how to improve in this area. The diagnostic tool can be consulted during each
annual planning exercise to ensure that adequate time and financial resources are devoted to
upgrading risk management capability. The Knowledge Base will provide practical examples
of policy and reporting templates, calculations for various ratios, and more. Regulators, MIVs,
networks, and associations can provide inputs as these resources evolve, as well as use them
as guidelines when looking at the risk management practices of MFIs under their purview.
Funding Participants—Voting and Non-Voting Membership – Contributing Membership
represents full membership and gives an individual or organization the option to participate in the
RIM’s steering committee to provide strategic guidance to the initiative. Similarly, Contributing
Members gain access to the RIM’s working groups, assuming they meet the working-group
membership criteria. Voting membership is composed of the RIM’s eight Founding Members
as well as Contributing Members who have subsequently joined. Members can also choose
to be non-voting through a less engaged participation if they are not interested in being
involved in the operations and governance of the RIM—for example, a member may simply
want to fund a specific project. Membership benefits range from recognition on the RIM
website and publications to participation in RIM working groups, strategic networking, and
the development of risk management industry standards. Through membership, participating
organizations become active participants in the development, promotion, and dissemination
of the RMGM and in improving risk management practices around the world.
Risk Management Industry Forums – The goal of industry forums is to raise awareness among
a broad audience of stakeholders about risk management issues in microfinance, as well as to
share how the RIM is addressing those issues. RIM Founding Members currently participate
in extended sessions at European Microfinance Week, held in Luxembourg, and in meetings
of the African Microfinance Network. Future sessions have been proposed to be held during
the Boulder Microfinance Training Program in Turin, Italy, and at the SEEP Network Annual
Conferences, in addition to continued participation in the Luxembourg events. These sessions
will promote consistent definitions and standards about risk management throughout the sector,
as well as provide a space for dialogue about specific issues as they surface.
RIM Advisors – The RIM Advisors are a group of risk management technical experts and
influential thought leaders in the microfinance industry who believe risk management is a
key component to the realization of a socially focused microfinance sector. Advisors bring
necessary credibility to this global initiative while providing key advice to RIM leadership and
governing bodies. The RIM seeks advisors among all stakeholders in the microfinance sector.
RIM Endorsement – The RIM is asking individuals to show their support by endorsing the
initiative. By providing an endorsement, a stakeholder becomes part of a global initiative which
believes that a safer microfinance industry can be achieved through the development of better
awareness, best practices, and appropriate standards in risk management. (More information
about the endorsement process is available at www.riminitiative.org/endorse.)
17. 17
Risk Management Industry Forum – The RIM is currently seeking funding to organize a
global RIM microfinance forum, which would be a standalone conference to discuss current
issues in risk management in microfinance, foster dialogue on the issues, and highlight the
work the RIM and its members are doing in this area. Representatives of all stakeholders
would be present, and there would be separate sessions devoted to topics as wide-ranging
as challenges in regulating and supervising risk management in microfinance to suggested
dashboards and reports for risk reporting.
Stakeholder
Risk
Management
Industry
Forums
Online
Knowledge
Exchange
Online
Talent
Marketplace
RMGM
Training of
Trainers
Course
(Individual)
RMGM
Implementation
(Institution)
Senior Level
Industry
Experts
X X X
MF
Practitioners—
Consultants
X X X X X
MF
Practitioners—
Networks and
Associations
X X X X X
MF
Practitioners—
MFI Staff
X X X X X
MFIs X X X X
Regulators X X X
Grantors/
Funders
(e.g., DFIs,
Foundations)
X X X
Rating
Agencies
X X X
MIVs X X X
Table 4. Future Planned Activities
18. 18
Online Knowledge Exchange – A long-term goal of the RIM is to create a clearinghouse of
knowledge related to risk management in the microfinance sector. This initiative will start with
an online resource library which will be supplemented and organized by risk topic over time.
Online Talent Marketplace – In an attempt to link the supply of and demand for risk
management expertise, the RIM is pursuing a long-term goal of providing an online
clearinghouse of consultants and experts in risk management for microfinance. This
clearinghouse would also eventually be the place where request for proposals (RFPs) for risk
management projects could be posted.
RMGM Training of Trainers (ToT) – The RIM plans to work through umbrella organizations to
train trainers on how to use the RMGM and diagnostic tool. There is a funding opportunity both
for the development of ToT materials and for delivering the training.
RMGM Implementation – How the RIM and its partners will implement the RMGM framework
at the MFI level is still part of strategic discussions at the RIM. The intent is that MFIs will
go beyond assessing their risk management gaps to implementing recommended policies,
procedures, reports, and practices.
