Boards and MFI senior management often do not adequately understand the critical role they should be playing to assess, address, and manage risks. The objective of the initiative is to create a common framework and language so that MFI board members can better execute their roles in managing risk. Through research and roundtable discussions with industry players around the world, Running with Risk aims to contribute to a more productive boardroom dialogue about risk. Ultimately, a stronger, more effective board presence related to risk mitigation will contribute to the health of MFIs around the world.
The Center for Financial Inclusion’s Investing in Inclusive Finance team is working closely with a seven-person dialogue group, which includes members of premier microfinance investment funds, networks, and the mainstream financial sector.
The Running with Risk project will produce or contribute to the following:
“Microfinance, a Risky Business”: A lively, conversational, personal, and even provocative paper about the importance of risk. This paper relates why practitioners and experts believe that MFI boards play an important role in risk management and what the boards’ roles and responsibilities entail – all in an effort to prompt discussion, raise awareness, and spark debate about this issue.
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Ten Risk Questions for Every MFI Board: Ten industry risk experts will each respond to one tough risk question for a questionnaire. This questionnaire will offer honest and candid responses to some of the most difficult risk issues that board members face, tackling issues such as over-indebtedness, fraud, “newer” risks, and lack of information. This questionnaire will also offer board members information about setting risk strategy and appetite, developing risk scenarios, which risks to focus on first, and how technology can help in risk management. This expert exchange risk questionnaire will be published electronically on the CFI website in spring 2013.
Governing Banks Manual: Microfinance Edition: The International Finance Corporation (IFC) has developed a toolkit called the “Governing Banks Supplement,” which helps train financial institutions in governance and risk management. The IFC has presented the Center with a unique opportunity to modify this toolkit to focus specifically on governance and risk management for the microfinance industry. The Running with Risk Toolkit would provide microfinance managers and board members with a very hands-on, experiential learning opportunity to improve their ability to identify areas of risk, and develop skills for managing those risks effectively.
Discussions and Trainings: Once awareness has been raised about the importance of governance and risk management, and a suite of risk management tools developed, the focus will be on developing methods to engage with board members directly, using these tools, in order to influence their thought and actions. Publications and tools will only become effective when they are used by the target audience of MFI board members. As such, the Center will look to discuss the risk article, and also to present and train MFI board members on the risk tools at industry conferences, meetings and roundtables, some hosted by the CFI.