M2i has helped MFIs in India and Africa in developing risk management systems.
We help MFIs in addressing the following categories of risks:
- Credit Risk
- Liquidity and funding risk
- Market risk (interest rate and foreign exchange risk)
- Operational risk
We follow a systematic approach in our risk management advisories. The summary of the methodology used is presented below:
- Design of Risk Management organizational structure
- Development of policies and guidelines
- Identification of risks
- Development of Key Risk Indicators
- Preparation of risk response
- Scoring of risks on the basis of likelihood and impact
- Preparation of a risk register
- Preparation of a risk manual
- Training of key staffs on risk management
- Exposing the Internal Audit team to a Risk Based Approach
M2i has helped the International Finance Corporation (IFC), private sector development arm of the World Bank group to adapt its risk assessment framework to the Indian context. With IFC’s help, it has implemented risk management projects in five MFIs in India.
M2i has contributed greatly to the understanding of risks in the organizations it has consulted to. One of the key contributions has been the better appreciation of the “hidden delinquency” phenomenon among its clients. This is explained in the box below:
Hidden Delinquency: Under the group guarantee mechanism, in case an individual is unable to pay her loan installment, other members of the group pool monies and pay up on the individual’s behalf. As a result the individual’s installment is paid and her loan shows up as being regular, hiding delinquency. This constitutes a risk event for the MFI as a borrower had not been able to pay her installment and guarantee mechanisms had to be enforced in order to make up for the shortfall. However, the MIS of most MFIs today do not catch data pertaining to such events. This results in Hidden Delinquency.