Nuts and Bolts of Microfinance: Risk Management - Examples and Tools

This tool provides a thorough review of the processes needed for successful risk management in microfinance lending. It covers a broad range of common risk management practices inherent in microfinance methodologies such as peer lending, character assessment, forced savings or co-signature requirements, loan approval processes, among others. The tool lists methods for screening employee's and client's characters. It states that MFIs can develop expertise at assessing the character of borrowers and become familiar with those characteristics that reduce the risk of future loan default due to credit risk or fraud risk. The tool:

• Elaborates on the five C's of client screening, namely, character, capacity, collateral, capital, and conditions;
• Presents various guidelines to manage fraud and repayment problems in MFI operations as well as to prevent delinquency;
• Lists a number of cases and live examples of initiatives undertaken to mitigate operational risks in microfinance across South Asia, sub Saharan Africa, and Latin America.