What do industry leaders feel is the biggest risk facing their institutions in 2016? This question is the focus of the latest Banana Skins report for the financial inclusion sector, Financial Services for All: It’s All about Strategy. The report ranks the top perceived risks facing those providing financial services to un/under-served people in emerging markets. Produced by the Centre for the Study of Financial Innovation (CSFI), and sponsored by Citi and CFI, the study examines the rapidly changing and expanding financial inclusion landscape to better understand how providers view challenges like new technologies, new market entrants, client repayment capacity, and macro-economic risks.
This year’s report, the sixth in the series surveying risks facing the inclusive finance industry, embraces a broader scope than previous editions, which focused exclusively on microfinance institutions. The new report reflects the advances in the provision of financial services to the base of the economic pyramid and encompasses both established providers and newer entrants like commercial banks, technology companies, and telephone and communication companies. A survey with respondents spanning practitioners, investors, regulators, and other industry stakeholders comprise the report’s findings. It’s important to note that in addition to the Banana Skins report series on inclusive finance, there is also a Banana skins report series on insurance and on banking.
The ability to design and implement a strategy was ranked as the top perceived risk. Risk management and change management were number two and three. Technology came in at risk number four, up sharply from previous surveys.
Many of the top perceived risks, like technology and change management, are different than those of years past, reflecting the challenges of surviving in a fast-changing industry. Others are more familiar, like quality of governance and regulation. Overindebtedness was ranked as the top risk in the past two Banana Skins reports and it’s captured in the current report under “repayment capacity,” which comes in at risk number five.
Potentially the biggest takeaway from this year’s report is that nine out of the top 10 risks pertain to internal rather than external or market risks. These risks fall within the control of management and center on an organization’s capacity to maintain clear-sightedness and lead in a vibrant industry.
The global macro-economy was the only external risk that made the top 10, reflecting how global uncertainties can threaten markets, particularly through recession, commodity price volatility, and unstable currencies.