Many different frameworks for categorising risk exist, and in practice one is often as good as another. To be
useful, a categorisation needs to be intuitive and simple yet comprehensive, and in practice some risks may be
legitimately placed in more than one category. The categorisation used in this Guide should be readily adaptable to
any existing categorisation that an MFI may use, or may form the general basis of risk categorisation for MFIs
considering a risk management framework for the first time.
Risks are most broadly divided into financial risks and operational risks.
Within each of these two headings additional broad categories are shown in
the table below:
| |
|
Risk Category |
Description |
HIV & AIDS or Health Example |
| Financial Risks |
|
Credit |
The risk that a party fails
to meet its obligations to the MFI, or fails to meet them in time |
Borrower defaults due to
financial stresses after a family death |
| |
Liquidity |
The risk that the MFI although
solvent does not have sufficient available resources to enable it to meet
its obligations as they fall due, or can secure them only at excessive
cost |
Savings clients withdraw
all funds following a 'flu outbreak to pay for treatment'. The MFI has
on-lent the funds, and has to seek emergency funds at penal interest rates |
| |
Market |
The risk of economic loss
arising from a fluctuation of values of positions and contracts, as a result
of investment, position taking or asset and liability management in the
interest rate, foreign exchange, equity and property markets and related
derivatives instruments and structures |
The cost of funds increases
faster than the MFI raises lending rates
Donor funding for AIDS initiatives is in foreign currency terms,
and the local currency strengthens, leaving a shortfall for the MFI
|
| |
Insurance |
The risks arising from the
inherent uncertainty in occurrence, timing and amount of Insurance liabilities.
Note that this does not include risks arising from partnership with an
insurer, but only the direct taking on of Insurance risk |
Insurance claims on funeral
policies higher than expected because the MFI underestimated the scale
of HIV & AIDS in the client base |
| Non-Financial Risks |
Operational Risks |
People in the workplace |
Risk that employees fail
to perform correctly or as expected as a result of HIV & AIDS and health
issues amongst employees |
Drop in Productivity due
to absenteeism
Discrimination against PLWHA employees
|
| People in the marketplace |
Risk that people (clients
or staff) fail to perform correctly or as expected due to AIDS and health
issues amongst the client base |
Poor treatment of PLWHA
clients by MFI employees
Poor treatment of suspected PLWHA clients by groups
|
| Systems and processes |
Risk that systems and processes
fail to perform correctly or as expected due to AIDS and health issues |
Processes: poor product
development processes lead to inappropriate products
Systems: poor data leads to inappropriate management decisions around
the impact of HIV & AIDS
|
| External |
Partnerships |
The risk that AIDS and health-related
partners fail to perform correctly or as expected |
Education partners fail to
provide the services that they committed to do |
| External events |
The risk of losses owing
to events occurring outside the MFI over which it has no direct control |
Client drop out patterns
change with HIV & AIDS |
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