managing risk.pdf

8 Chapter 1 - Risk Management: Preparing for the Unexpectedwarning. Finally, some cannot provide enough character references and transparent records to compensate forthe lack of physical collateral.Additional Risks for MFIs with Rural PortfoliosMFIs serving rural clientele confront risks related to the natural resource base, the environment, and the cyclesand risks of agricultural production. Many experts encourage urban MFIs to expand into the countrysideand meet the challenges of the credit-hungry rural zones. MFIs already serving rural areas are aware of thechallenges—yet they often fail to reach scale, control costs, or effectively enforce contracts when necessary.Table 1.2 lists the risks associated with rural areas. 6Table 1.2 Rural Risk CategoriesMarket risksProducon risksProducer risksClimate risksSource: Authors.Price volalityIrregular access to marketsPoor infrastructureInadequate informaonLand producvityPestsDiseasePostharvest risksExperienceTechnologyManagement abilityDroughtFloodWindFreezeHailHeat WaveMarket risksMarket risks specific to rural lending include changes in interest rates, exchange rates, prices for inputsand outputs, and relationships between key actors in value chains. To manage exposure to these risks, themicrobusiness operator and the MFI focus on those factors they can control. For example, an MFI with arural client base can link its borrowers to regularly updated databases on input and output prices. An MFIcan also promote strategic relationships among its clients, super markets, agro-industry buyers, and exporters.International buyers are eager to build direct links to producer associations in Latin America—as the networksdeveloped by the Starbucks, Home Depot, and Whole Foods chains have done. With the Calvert Foundation,Starbucks provided a US$1 million loan for onlending to small coffee farmers and cooperatives in Costa6. See chapter 7 of this volume for a discussion of climate risks.