Risks Faced by Microfinance Institutions

Abstract

There are number of risks that an MFI has to face these risks could be of delinquencies, frauds, staff turnover, interest rate changes, liquidity, regulatory etc.

But all these risks can broadly be classified into four major categories;

1. Credit risk.
2. Operationalrisk
3. Market risk and
4. Strategic risk

Of the above four categories Credit risk and Market risk are directly of financial nature and hence are called Financial risks while Operational risk and Strategic risk are of non-financial character and result mainly from human errors, system failures, frauds, natural disasters or through regulatory environment, weak board, poor strategy, etc. However, it must be remembered that operational and strategic risk, as and when materialize will also translate into financial losses for the organisation.