Paper

Microfinance and Risk Management: A Client Perspective

Does microfinance help clients manage risk? An introduction

This AIMS report prefaces the more substantial work: 'Microfinance, risk management and poverty' by the same authors

It demonstrates the importance of client perspectives in understanding the nature of risk they experience - what is most prominent, most expensive, most frequent or most devastating, how they respond and the integral roles of microfinance services.

Suggests that both targeted and non-targeted microfinance programmes reach a variety of clients across a broad range of poverty levels. All these clients are exposed to frequent and wide-ranging risks such as structural factors (systemic risks), emergencies and life cycle events. Furthermore, lack of access to market information, competition and labour practices are important sources of enterprise risk for clients but do not necessarily lead to risk adverse behavior. Risks were found to be highly variable across client enterprises.

Reveals the importance of borrowing and saving at all poverty levels to mitigate risk and reduce vulnerability. By making money available, microfinance services provide clients and their households with options to take advantage of opportunities when they arise, manage cash flow, and maintain access to a range of formal and informal financial services to manage crises. It also gives clients the opportunities to build and diversify all kinds of assets which can be drawn upon in times of need, including human assets such as health and the education of children.

Concludes that understanding client strategies for dealing with risk and the role of financial services in this process provides a basis to design better products, improve impact and promote sustainability.

This document is also availalble in French, Spanish, Arabic, Chinese and Bahasa here.

[Adapted from author]

About this Publication

By Helms, B. & Matin, I.
Published