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120Indexrationale, 79regulation, 81, 82, 84repossession, 80–81, 82risk management, 82, 84sources of risk, 82tax issues, 81, 83, 84types of leases, 79Microrate, 12MicroVest Capital Management, 21bMobile banking, 104–05, 106Mobile phones, 103, 104, 104fMoral hazard, 5NNational Ecumenical Development Association(ANED) (Bolivia), 80, 82–83Natural disasterscatastrophe risk deferred drawdown option,94, 94bchallenges for MFIs, 90, 91contingency funds, 92, 93–94, 94bcosts, 89–91failures of systems related to, 89government role, 98harms of, 89immediate response, 95–97loan products, 97, 97tpredisaster planning, 89, 92–93risk management cycle, 92frole of MFIs, 89, 95, 98services needed, 89, 90stages of preparedness and response, 91–92Nicaraguamicroleasing, 83natural disaster response, 96Nongovernmental organizations, 20OOperating costs, 41Operational risksgood management practices, 5sources, 5, 7, 44strategies for reducing, 44Ownership structure, MFI, 19, 20PPakistan, 104Performance evaluation, MFIboard of directors, 25b, 31–32, 38tgoals of MFI owners and, 19governance capacity, 23binformation for, 30supervisor and manager evaluation, 29Personal digital assistants, 106–07PeruCajas Municipales de Ahorro y Crédito, 21foreign currency lending, 6housing microfinance, 72, 73microleasing, 84Philippines, 105Planet Finance, 12Point-of-sale systems, 103, 104f, 105, 107–08, 108b, 111Poland, 95–96Political functioningdonor agency–government relations, 22governance of state-funded institutions, 21risks for state-owned banks, 5See also regulationPortfolio compositionadverse selection risk, 5–6exposure limits, 11housing microfinance, 72–73risk management strategies, 7sources of risk, 7See also loan portfolioPrivate commercial bankshousing microfinance, 70potential risks, 5Private investment in MFIsconcerns, 21bgovernance and, 20ProCredit banking system, 7Prodem Fondo Financiero Privado (Bolivia), 109Producer risks, 7–8, 9Product designdisaster response, 97, 97telements, 6housing microfinance, 74–75rewards for on-time payment, 69–70risk management strategies, 6, 13–14sources of risk, 6Production risksrisk management strategies, 9sources, 9Productivityrisk management strategies, 14rural production, 9Profile, producer and production environment, 9
Managing Risk and Creating Value with Microfinance121Profit, MFI, 43housing microfinancing, 74ProFund, 21bProperty insurance, 53RRaw materials and components for microbusinessesdisruption after natural disaster, 91sources of risk, 7Red Transaccional Cooperativa, 105–06References, 8Regulationhousing microfinance, 70insurance consumer protection, 59interest rate ceilings, 46, 47tMFI governance structure and, 20, 22microleasing, 81, 82, 84microlending restrictions, 10new technologies, 110–11, 110bproperty title and rights, 68prudential, 48to reduce interest rates, 47–48risk management role, 10weather-indexed insurance, 58–59Reinsurance, 57, 58, 59Repossession of leased equipment, 80–81, 82Reserves, MFIBasel II requirements, 10contingency funds, 92, 93–94, 94bgood risk management, 4–5, 7Risk assessmentelements, 10external ratings services, 12goals, 11portfolio composition, 11–12responsibility, 10risk-pricing methodologies, 42–43tools, 12, 13bRisk management, generallyBasel II standards, 10categories and types of risk, 3–9, 4trisk assessment, 10significance of, 3, 14steps, 11–12strategies, 13–14system design and development, 10type of MFI and, 5Risk management and investment committee, 28Risk pooling, 53Rockefeller, John, 87Rural lendingbusiness service provider alliances, 14risk management strategies, 13–14sources of risk, 7, 8–9, 8tweather-indexed insurance, 56–57, 58–59SSaint-Exupery, Antoine de, 77Savings and Agricultural Credit Cooperative Society(Madagascar), 80Segmented risk evaluation, 42–43Shorebank Advisory Services, 12, 12tSize of loan, sources of risk, 6Social performance management, 24bSouth Africa, 105Specialized MFIs, Basel standards, 10Starbucks, 8–9State-owned and state-funded institutionsinstitution governance and, 21political risk, 5, 21strategies to reduce interest rates, 45–46types of, 21Strategic planning, 23Strategic risks, 5Strikes, 7–8Subsector analysis, 9Sun Tzu, 17Supervision and management of daily operationsboard of directors’ role, 24, 25–26, 29management information system, 30performance evaluation, 29risk management role, 10training and professional development, 30TTaxation, microleasing, 81, 83, 84Technologyadoption and implementation, 109, 111associated risks, 110biometric, 108–09branchless banking, 110bclient resistance, 105cost considerations, 109–10mobile banking, 104–05, 106network systems, 105–06penetration of services and, 104fpersonal digital assistants, 106–07
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viContentsThe Role of Government an
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Managing Risk and Creating Value wi
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4 Chapter 1 - Risk Management: Prep
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