What is Risks

Is the possibility of suffering harm or loss

What is risk Management

The process of identifying and controlling risks that includes prevention of potential problem occur, detection of actual problem and correction of policies and procedure.

Major Categories of Risks

Institutional Risks Social Mission Commercial Mission Dependency Strategic Reputation

Operational Risks Credit Fraud Security Personnel

Financial Mgt Risks Asset and Liability Inefficiency System Integrity

External Risks Regulatory Competition Demographic Macroeconomic Environmental Political

Six-step Risk Management Process

1. Identify risks

6. Revise policies and procedures

2. Measure and prioritize risks

5. Monitor effectiveness

3. Design policies to Manage risks

4. Implement policies And assign responsibility

How do we Measure and Prioritize risks

Likelihood; how likely is it to occur? Frequency; how often might the risk occur? Severity; How great a loss will it be? Trends; is the likelihood, frequency, severity worse?

Strategies to Manage Risk

1. Avoid 2. Transfer 3. Mitigate 4. Reduce

Disaster Preparation
Access to savings Loan Scheduling Disaster loans Reconstruction loans Relief grants

 Put control in-placed that do not allow risk to exceed the tolerance level. Set risk tolerances Identify the risk drivers Prepare for uncontrollable risks to mitigate their effects ( contingency planning) Adopt effective system Authority and approval Create internal auditing team

Main Messages
1. You can not eliminate risk. 2. A risk framework helps assess the entire range to which an MFI might be vulnerable. 3. Risk management is about prevention, detection and controls. 4. Use cost benefit analysis to set risk tolerance 5. Risk management is an ongoing process. Assess the effectiveness of risk management strategies and adjust them accordingly.