IFMR Capital recently hosted the Annual Risk Workshop for its MFI partners. The concept of the workshop was to provide a common platform for capital providers/financiers and clients, and share our risk management principles and workings.
IFMR Capital believes that holistic risk management that extends beyond operational risks and process audits is integral to the long term sustainability of an organisation. Risk management should cover various aspects of credit risk, operational risk, market risk, political risk and regulatory risk, and asset-liability management. The Risk Workshop was structured to cover the various aspects of risk as we perceive and evaluate it today, which in turn is based on our Underwriting Guidelines, risk frameworks and our policy initiatives in the sector.
Senior level executives from 15 MFIs across the country flew in for a day of structured workshops, discussions, and case studies with the IFMR Capital team. Before the workshop kicked off, the guests were asked to fill in a questionnaire to rate the severity of various risks in the MFI sector and how prepared each MFI felt they were to deal with such risks. This process set the tune for the workshop and later once the results were in, it emerged that the three most severe risk factors for IFMR Capital’s MFI partners were: Political Interference, Liquidity and Regulation. This was in contrast to the global survey of risk perception among MFIs across the world, which viewed Credit risk, Reputation and Competition as their top three risk worries. However, the MFI partners rated themselves just as ready and prepared as their global counterparts to deal with these risks.
The schedule of the workshop covered the spectrum of IFMR Capital’s risk management system – right from risk modelling and tools to consumer protection to monitoring to best practices observed.
By walking our clients through the processes and workings that IFMR Capital has in place to manage risk, we hoped that we could have each party in clear understanding of how the other analyses and manages risk. In addition, feedback from our MFI clients was sought and encouraged. The day closed with a presentation and discussion on best practices for risk mitigation, which was a summing up of industry observations made by the monitoring team over the years across a wide range of MFI centres and geographies.
2 Responses
Dear Sreya Ray,
This is a wonderful effort by IFMR Capital and I hope that it becomes a recurring annual event. I also hope that in the near future IFMR Capital is able to collaborate with the Institute for Financial Management and Research to offer much more advanced, in-depth, and intensive technical training to senior Local Financia Institution (LFI) staff as well as their Board Members of several of these issues.
On the issue of political risk mitigation, since IFMR Capital sells off systemic risk to national aggregators, to a large extent it directly mitigates political risk for the LFI. To the extent of the First-Loss provided however, the LFI political risk remains with the originator. I wonder if IFMR Capital can develop a guarantee product to protect the LFI against the complete erosion (more than 50% could be the pay-out trigger) of the First Loss of the LFI by pooling similar risks across all of its partners. This would then automatically protect the LFI against catastrophic events such as the massive flooding, earthquakes, or even political risks. Even with an annual guarantee commission of as high as 5% (needed to build strong reserves) the portfolio level impact could be as small as 0.5%. And, at a 5% guarantee commission perhaps IFMR Capital could build a non-recourse fund into which it could attract high-yield investors even – it may be necessary to examine shipping guarantee models to build a full structure.
Sincerely,
Nachiket Mor
Dear Mr. Mor,
On behalf of IFMR Capital, particularly Kshama Fernandes and the Risk team who conceptualized and put together this workshop, I thank you for your kind comments.
We are taking your suggestion re: the guarantee product on board, and we plan to brainstorm on this interesting idea soon. We look forward to providing you with our own thoughts and ideas for making this a reality.
Best,
Sreya