managing risk.pdf

12 Chapter 1 - Risk Management: Preparing for the Unexpected• Products to be provided the various markets or niches• Market niches—based on the mission statement and management and the board of directorsInternal tools and externally provided services help to measure these risks. Table 1.4 and box 1.2 describe therisk analysis tools used by Shorebank Advisory Services and the CAMEL (Capital Adequacy, Asset Quality,Management, Earnings, and Liquidity Management) approach used by ACCIÓN International, respectively.Other specialized external ratings services that focus on MFIs include Microfinanzas, Planet Finance, andMicrorate. Microfinance Information Exchange provides an international rating service. The ConsultativeGroup to Assist the Poor offers a risk identification tool in its appraisal handbook. 10Table 1.4 Shorebank Advisory Services (USA) Credit Risk Grading SystemGeneral Risk Credit risk grade DescriponLow riskGrade 1 – ExcellentGrade 2 – GoodLoans develop according to projecons or beer, and no problems withrepayment have ever occurred or are ancipated.Grade 3 – SasfactoryPotenal risk Grade 4 – Watch List Loans show deviaons from the project’s business developmentscenario, and problems with repayments can be ancipated.High riskGrade 5 – SubstandardGrade 6 – DoubulGrade 7 – LossLoans have different terms of delinquency, and they are associatedwith different probabilies of being fully repaid. The longer the loan isdelinquent, the less likely it is that the balance would ever be repaid infull.Source: Adapted by the authors from the Palesnian Network, Fact Sheet 5, “Risk Management and the Credit Risk Grading System,”hp://www.shorebankcorp.com/bins/site/templates/default.asp.10. For more information, see Microfinanzas, http://www.microfinanzas.org/; Planet Finance, http://us.planetfinance.org/; Microrate,http://www.microrate.com/; The Microfinance Information Exchange, http://www.themix.org/; The Microfinance InformationExchange Market, http://www.mixmarket.org/; and Consultative Group to Assist the Poor, http://www.cgap.org/p/site/c/.