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Managing Risk and Creating Value With Microfinance

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Managing Risk and Creating Value with Microfinance brings together the latest information on microfinance institutional sustainability from leading international experts and microfinance practitioners in four Latin American countries. Each chapter focuses one topic: risk management; good governance; interest rates; microinsurance; housing microfinance; microleasing; disaster preparedness; or new technologies.

The papers in the book are the result of a series of meetings financed by the United Kingdom s Department for International Development and supported by the World Bank s Global Development Learning Network. The Bank engaged practitioners in these four countries in response to a movement in some South American governments to impose policies and practices that would, in the long run, reduce the microfinance institutions (MFIs ) sustainability. The meetings were designed to strengthen MFIs by disseminating innovative approaches in the above eight areas, promoting a South-South dialogue, encouraging greater ties between these MFIs, and highlighting the Bank s ability to mobilize international experts and local practitioners. The discussions took place between 2006 and 2008.

Managing Risk and Creating Value with Microfinance covers risk management topics such as risk management systems, good governance, interest rates, and microinsurance. The authors present information on new product development and efficient delivery methodologies including housing microfinance, microleasing, disaster preparedness, and new technologies.

Managing Risk and Creating Value with Microfinance is intended for MFI board members, managers, and staff, students and professors of microfinance, and government regulators and supervisors.

Author(s): Mike Goldberg, Eric Palladini
Publisher: World Bank Publications
Year: 2010

Language: English
Pages: 136

Contents......Page 7
Preface......Page 11
Acknowledgments......Page 13
About the Authors and Contributors......Page 15
Abbreviations......Page 19
1 Risk Management: Preparing for the Unexpected......Page 21
Risk Categories......Page 23
Management of the Biggest Risks......Page 25
Producer Risks......Page 27
1.2 Rural Risk Categories......Page 28
1.1 Basel Committee: International Standards and Practices for Risk Management......Page 30
1.3 Steps in Risk Management......Page 31
1.2 Risk Measurement Systems......Page 33
2 Good Governance: Managing Internal Risk......Page 37
Ownership, Legal Form, and Their Impact on Governance......Page 39
Private Investors......Page 40
2.1 Investors as Board Members......Page 41
MFIs in Transformation......Page 42
2.2 Questions to Assess the Implications of an MFI’s Ownership Structure......Page 43
The Board of Directors: Effective Structure......Page 46
The Board of Directors: Effective Processes......Page 48
2.1 Recommended Characteristics and Background of a Board Member......Page 52
Summary and Conclusions......Page 55
3 Interest Rates: Paying for Risk......Page 59
Interest Rate Setting......Page 61
Are Microfinance Interest Rates Too High?......Page 63
3.1 Microcredit Cost Structure......Page 64
Lowering Interest Rates through Government Policy......Page 65
Conclusion......Page 68
4 Microinsurance: Anticipating Client Risks......Page 71
4.1 Types of Insurance......Page 73
4.3 The Microinsurance Supply Chain......Page 76
4.1 The Mechanisms of a Weather-Indexed Insurance System......Page 77
How Does Latin America Fare in Microinsurance Coverage?......Page 79
4.1 Microinsurance Coverage in Latin America, 2007......Page 80
Conclusion......Page 82
5 Progressive Housing Microfinance: Building One Room at a Time......Page 85
The Housing Microfinance Approach......Page 87
Subsidies......Page 89
Examples from Latin America......Page 90
5.3 MiCasa Portfolio, December 2007......Page 92
5.1 Can Gender Be a Factor in a Housing Microfinance Program?......Page 93
6 Microleasing: Overcoming Equipment-Financing Barriers......Page 97
Advantages of Leasing for Microbusinesses......Page 99
6.1 CECAM’s Expanded Menu of Leased Equipment for Rural Producers......Page 100
6.1 Advantages and Disadvantages of Financial Leases......Page 101
Use of Microleasing in Latin America......Page 102
Recommendations for a New Microleasing Program......Page 104
7 Disaster Management: Preparing for the Worst......Page 107
Costs of Disasters......Page 109
Proactive Approaches and Concrete Responses......Page 111
7.2 New Financial Products, Results, and Implications......Page 117
8 New Technologies: Providing a Path to Lower Costs and New Products......Page 121
Why Technology Matters......Page 123
8.1 Wireless Penetration Rates, 2003–12......Page 124
Network Systems......Page 125
PDAs......Page 126
8.3 PDA Use and Portfolios at Risk......Page 127
8.1 Minimum Requirements for a POS Device......Page 128
Costs, Risks, and Challenges......Page 129
Conclusion......Page 131
Glossary......Page 135
Index......Page 137
2.3 The Board and Social Performance Management......Page 44
2.4 Evaluating Board Performance......Page 45
2.5 Some “Do’s” and “Don’ts” for Boards......Page 47
2.6 Sample Board Meeting Agenda......Page 49
2.7 A Case Study: The Dominican Integrated Development Institute......Page 51
2.8 Responsibilities and Standards of Conduct for Board Members......Page 54
3.2 Effects of Subsidized Interest Rates......Page 66
4.3 FINSOL: Life and Funeral Insurance in Mexico......Page 81
7.2 Buro-Tangail Contingency Fund, Bangladesh......Page 114
7.3 Loan Product Adjustments for Disasters: The Case of the Bangladesh Rural Advancement Committee (BRAC)......Page 115
7.4 Katalysis: Response to Disasters......Page 116
8.2 Regulatory and Policy Guidelines for Branchless Banking......Page 130
3.1 Percentage Components of Real Interest Rates, 2004–05......Page 62
4.1 Traditional and Potential Insurance Markets......Page 74
7.1 Cycle of Risk Management......Page 112
1.1 Urban Risk Categories......Page 24
1.4 Shorebank Advisory Services (USA) Credit Risk Grading System......Page 32
2A.1 Sample Board Self-evaluation Questionnaire......Page 58
3.1 Effects of Ceilings on Microcredit Interest Rates......Page 67
4.2 Risk Coverage and Outcomes......Page 75
4.4 Characteristics of the Four Insurance Delivery Models......Page 78
5.1 Differences between Microfinance Loan Types......Page 88
5.2 FUNHAVI Performance Indicators, December 31, 2007......Page 91
7.1 The Enormous Cost of Natural Disasters......Page 110