1. Operational Risk Management (ORM) in a growing microfinance industry Michael Kortenbusch BFC Managing Director November 15 Luxembourg

2. 2 Who is involved? ORM Process Success Factors

3. 3 General Management Line Function 1 Line Function 2 Line Function 3 Line Function 4 Line Function 5 Risk Management Who is involved? Board

4. 4 Operational risk management process Top Down Assesment (TDA) Implementation Planning AnalysisDecision

5. 5 Strategic objective Priority Risk identification Risk — process allocationMeasure Portfolio growth 40% PAR increase - Risk occurs in training - Risk occurs in internal control.... Takeover of competitor Legal risks  Risk occurs in legal review RSA in process YZ Objective 3… …….... Objective 4 Risk B  Risk B occurs in process XY RSA in process XY Top Down Assessment (TDA)

6. 6 Operational risk management process Implementation Planning AnalysisDecision Loss registration Risk Self Assessments (RSAs)

7. 7 Register Operational Losses ApprovalInformationAssessment ORM Committee Credit note or complaint Registration 1 Definition of action plans Line staff Risk Management Management Board 2345 Follow up 78 6

8. 8 Risk Self Assessment 15.11.2012 RiskExperienceEffect Action for risk prevention Likelihood a*Impact b*RPF r**Ranking Serve the customer Customer doesn’t know products Customer dissatisfaction Complaint Training. handouts 57351 Frequent power cuts Demotivation of staff Loss of customer data Installation of generators 3 5152 FraudImage damage Loss of assets Strengthen internal control 2 363 05 06 07 08 09 010 011 012 013 014 015

9. 9 Operational risk management process Implementation Planning AnalysisDecision Review Approval of risk mitigation actions

10. 10 Review Step 1: Number of Operational Losses per year end Step 2: Process allocation Step 3: Complaints per Process

11. 11 Operational risk management process Implementation Planning AnalysisDecision Communication

12. 12 Communication Local Management Board Staff Corporation/ Mother Company ORM Regulating Bank Department Heads Authorities

13. 13 Success factors for Operational Risk Management Must have HARD FACTS Defined processes ORM Tracking System SOFT FACTS Committed management Staff awareness Will have HARD FACTS Procedures RM Committee SOFT FACTS Trained staff

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16. 16 "To win without risk is to triumph without glory." — Pierre Corneille

17. 17 BFC offers Max-Högger-Strasse 6Phone:+41 44 784 22 22info@bfconsulting.com CH-8048 Zurich, SwitzerlandFax:+41 44 784 23 23www.bfconsulting.com