managing risk.pdf

14 Chapter 1 - Risk Management: Preparing for the Unexpectedinstallment or lump sum payments, and the effective interest rate) to accommodate price volatility and theclient’s cashflow.To address the issue of low crop productivity, the MFI can help microbusinesses form an alliance with businessservice providers—an agricultural technology institute, for example. This relationship can provide farmers (MFIclients) with access to improved seeds and pesticides, recent developments in land management techniquesand production technologies, and improved postharvest practices. It would also help the clients move fromtraditional to more commercially oriented production and business practices.Finally, to improve access to clients in dispersed rural settlements, MFIs should take advantage of low-costtechnologies such as mobile phone–based microfinance transactions or banking service correspondents (seechapter 8 of this volume on technologies).Because risks are unavoidable, they must be managed. Risk management systems are, in effect, the wings neededbefore taking the leap of faith of lending to large numbers of informal microbusinesses. MFIs with effectiverisk management systems in place are far better prepared for the unexpected, and this preparation can be thedifference between growth, stability, or bankruptcy. By instilling a culture of risk management throughout theinstitution, from the board of directors to loan officers and internal operations staff members, the MFI and itsclients should be able to manage unexpected events—and even thrive.