1. MicroSave Market-led solutions for financial services

2. The Key Strategic Risk in Microfinance
Constrained human capacity at every level (board, management, staff and clients)
Requires intensive investment in human resources and systems
Training
Technical Services

3. MicroSave India Offices in Lucknow and Hyderabad
Applied Microfinance Institute, July 13-24, 2009
‘Mini’ AMIs every quarter in various locations
Nearly 50 professional staff conducting on-site training and technical missions with ‘Action Research Partners’ around India
Ongoing programme of research in India leading to curriculum revision/development

4. Built on Practical Work with a Variety of Types of Financial Institutions

5. “Good governance is perhaps the single most important factor in eradicating poverty and promoting development.”
Kofi Annan, Secretary General, United Nations,

6. Benefits of Good Governance
Trust – the will and the capacity to keep promises to all stakeholders, including clients
Clear mission, vision, and relevant values
Connection to stakeholders
Financial stability

7. What is the Board’s Role in the Risk Management Program?
Ensuring that all material risks are identified.
Ensuring that risks are managed within thresholds that are acceptable --
given the MFI’s goals, mission and appetite for risk.
Ensuring that management puts in place systems and procedures for ensuring compliance with risk management parameters, as vetted and approved by the board.
COSO

8. What are Board’s Key Responsibilities?
Mission and vision: development, focus, and preservation
Board management and self governance
Executive oversight and management
Policy development and approval process
Financial and operational oversight and fiduciary responsibility
Strategic planning and development

9. Characteristics of a Board Member
Business Sense
Microfinance Experience
Financial Market Experience
Legal and Regulatory Experience
Marketing Expertise
Public Relations
Technology Expertise
Operations Expertise
Fundraising Experience
Ability to discern, to think, to plan and to speak up!

10. MicroSave Market-led solutions for financial services
The Risk Management Approach at MicroSave: Building capacity, supporting systems development and accelerating institutionalization

11. MicroSave’s Toolkits Toolkits Available: Corporate Brand and Identity
Introduction to Microfinance
Strategic Business Planning
Market Research for MF
Costing and Pricing of Products
Pilot Testing - Savings
Pilot Testing - Loans
Roll - Out: Going to scale
Loan Portfolio Audit for MFIs
Quantitative Research
Strategic Marketing
Product Marketing
Corporate Brand and Identity
Customer Service
Staff Incentives Scheme
HR Management
Process Mapping
Institutional and Product Risk Management
Training of Trainers
Individual Lending for Managers
Individual Lending for Officers
Governance for MFIs

12. MicroSave’s Toolkits Toolkits Available (cont.):
Internal Audit and Controls
Basic Financial Accounting
Basic Financial Management & Ratio Analysis
Delinquency Management for Group-based MFIs
Management Information Systems for MFIs
Toolkits Under Development:
MFI-Out-Of-A-Box
Managing Rapid Growth in MFIs
Advanced Accounting
Advanced HR Management

13. MicroSave Market-led solutions for financial services
Risk Management Tools Process mapping  risk analysis  compliance monitoring  institutionalization Market research  design  product piloting  institutionalization  product roll-out

14. Process Mapping
Process mapping is a powerful tool that can allow MFIs to see the process as it is today, and then imagine what it should be in the future, while reducing risks and improving efficiency.
It is a visual representation of a process, that uses symbols and arrows to display:
Inputs,
Outputs,
Tasks performed, and
Task sequence.

15. Process Maps Are Created for Three States
“As Is” - The “as-is” state is how the work is currently being performed.
“Should Be” - The “should be” state consists of the formally recommended state of performance. In many (if not most) cases the “as is” at the front line in the branches will vary significantly from the “should be”.
“Could Be” - The “could be” state is a new level of performance that can be achieved via process redesign. Achieving “could be” is what true reengineering is all about.

16. Identify Operational Gaps “Should Be” and “Could Be” Maps
Creating a Process Map
Ten Basic Steps for Mapping a Process
Step 1
Step 2
Step 3
Step 4
Identify Operational Gaps
Choose Processes
Assemble team
Define Objectives
Step 5
Step 6
Step 7
Step 8
Step 9
Step 10
Gather Data
“As Is” Map
Analyse “As Is” Map
“Should Be” and “Could Be” Maps
Share Findings
Implement

17. MicroSave’s Five Phase Product Development Cycle
Evaluation and preparation
Market research
Concept/prototype design
Pilot testing
Product launch and rollout

18. Why Focus on New Product Risk?
“. . .many of the most common and serious risks are related not to products – as is often assumed by about-to-be-regulated micro-credit institutions – but rather to ownership, management, and institutional capacity to deliver products.”
(Marguerite Robinson, Nov 2002)

19. New Product Development Risks
Motivation risk
Management/board
commitment risk
Orphan-product risk
Demand risk
Positioning risk
Product mix risk
Competition risk
Counterparty risk
Operational risk (fraud,
technology, management)
Delivery systems risk
Communication risk

20. Assess Risks in Product Development
The product development team should start with a high level overview of potential risks.
Look at internal and external risks, product and institutional risks.

21. Risk Management Feedback Loop
1. (Re) Identify, (Re) Assess and (Re) Prioritise Risks
2. Develop strategies to manage risks
5. Test effectiveness and evaluate results
3. Develop tactics to mitigate risks
4. Assign responsibility and implement

22. Tools Available To Assist With New Product Development Risk Analysis
New Product Process
Tools
1. Evaluation and Preparation
Institutional Risk Assessment
Institutional Risk Mitigation
Cross Product Risk Overview
2. Market Research
Market Research for MicroFinance Toolkit
3. Concept/Prototype Design
Costing and Pricing Toolkit
4. Pilot Testing
Pilot Testing Toolkit
Process Mapping Toolkit
Product Risk Assessment
Product Risk Summary
Post Pilot Risk Assessment
5. Rollout
Product Rollout Toolkit
Pre Rollout Risk Assessment

23. Key Points To Consider In Institutionalising Risk Management
Where within your institution will responsibility for risk management reside?
What will be the reporting lines?
Selection of the Risk Manager
Formulation of a risk management policy
Documenting risk management processes in a risk management manual

24. Institutionalisation in Practice - Risk Management at Equity Bank (1)
Shifted to a formal risk management framework
Process mapping to identify and mitigate process risks was institutionalized
All major product delivery and other institutional processes were mapped and key risks identified

25. Institutionalisation in Practice - Risk Management at Equity Bank (2)
Compliance Department created to oversee:
Process mapping
Risk management and
Compliance
managed by an experienced compliance manager.
Internal Audit Function strengthened to independently review internal controls

26. Institutionalisation in Practice - Risk Management at Equity Bank (3)
Risk Management Committee constituted, drawn from:
Credit
Treasury
Marketing
Finance
Operations IT
Audit, and
Compliance departments
as well as CEO and the Board
Risk Management Committee meets regularly

27. 1.84 million clients and $34 million profit before tax
MicroSave Market-led inputs started here

28. Applied Microfinance Institute 2009
Jaipur, July 13-24
MFIs’ Stream
Process mapping
Internal audit and controls
Delinquency management
Human resource management
Bankers’ Stream
Financial management
Loan portfolio audit
Capital structuring and MFI valuation

29. MicroSave Market-led solutions for financial services
B-52 Kapoorthala Crossing, Mahanagar Extension,
Lucknow , Uttar Pradesh, India
Websites: