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Michelle Katics, CEO of BankersLab^®, supports the MFI sector by providing pro-bono risk-management technical assistance to microfinance institutions (MFIs). BankersLab, through its corporate social responsibility program, supports Bankers without Borders^®, Bankers with Vision, MFIOpenSource and Kiva.

I recently returned from a Bankers without Borders (BwB) volunteer engagement in West Bengal, India, with Society for Model Gram Bikash Kendra (GBK), a small non-profit microfinance company. As many BwB skilled volunteer-corps members can attest, volunteers typically feel they gain as much or more than the recipients of the services they provide. In this case, the experience for me highlighted important factors for success in risk management, some of which we forget from time to time in the traditional banking sector. Much of what I learned came from observing the energetic and curious discovery process of the GBK staff as they tackled typical risk management challenges.

When working with partners around the world, BwB (a Grameen Foundation initiative) recognizes that MFIs have a common need: risk management. MFIs face similar risk management challenges across the board, including how much risk to accept, how to mitigate the risk that cannot be avoided, and how to manage the real risks that are part of their day-to-day business and operations.

It’s free to change your mindset and habits.  The GBK staff expressed concern about how they could improve their risk management while remaining in control of their budget. They worried that IT systems and additional staff were the main (and costly) requirements for successful risk management, yet were delighted to discover simple and easy ways to improve their operations, with minimal cost. Many of these ways don’t apply to the traditional banking sector, which already has strong systems, but some of the simple ”mindset” changes are a relevant reminder for us all.  For example, GBK decided to research and implement new best practices in areas such as accounting and audit. Taking a step back to examine and improve the process can be the key to success. By doing this, they also realized the need to create contingency plans and other methods of dealing with crisis before facing one.

Another observation was the impact of GBK’s collegial and open collaboration among departments to jointly tackle risk management. In other words:

Cost of coffee and snacks for the meeting:  $20

Value:  Priceless

Risk awareness is one of the most important drivers of effective risk management.  The risks that we don’t clearly understand are usually the same ones that cause material loss events. GBK has set out to conduct a risk assessment where staff will brainstorm all types of risks, then formulate action plans. For each, they will either mitigate, transfer or accept the risk. Reviewing those mindful decisions and strategies periodically is invaluable.

GBK was also concerned that it is just a small, non-profit MFI. How could it possibly develop a comprehensive risk management structure? There are certainly obstacles, but staff quickly realized that they already possessed the necessary intent, motivation and capabilities to make progress. With the right intent and motivation, this is true of most MFIs.

Clearly define employee roles and incentives.  When we talk about mindset, we always say that each employee must support risk management. However, the stark reality of broad job responsibilities and too few hours in the day can result in a poor outcome. To mitigate against this, GBK has undertaken a review of employee responsibilities and incentives while brainstorming methods of facilitating risk awareness and issue escalation.

Mission drift: a menace to risk management.  Isn’t serving borrowers in a financially sustainable manner the priority? Even in the traditional banking sector, this is our mission (albeit with higher expectations and requirements around financial sustainability). The philosophical question remains in both sectors – how can we manage to short-term budget and revenue pressure while balancing long-term sustainability?

There is no panacea for this underlying tension of two competing goals. However, clearly stating the mission and periodically reviewing outcomes is a start. Further, ensuring that the mission is clearly articulated and enforced from the Board level is also a key requirement. In the case of GBK, we had the luxury of multiple Board members attending our risk management education and brainstorming sessions. A mission can be easily articulated, but a Board needs strong dedication and risk tracking data to follow it up and enforce it. GBK has set out to do exactly this.

Good News for MFIs

BwB is developing tools to help institutions such as GBK build risk capacity. There are already some great training materials out there, and BwB will be complementing the capacity-building materials available for such projects. With BwB’s injection of skilled volunteers, MFIs can expect to build their risk capabilities very quickly.

In light of the recent debacles in Andra Pradesh, I arrived in India with a heavy heart to tackle risk management in the MFI sector. But as a result of the promising early results we saw at GBK, the weight soon lifted and I left West Bengal feeling energized and optimistic. We look forward to supporting GBK, leading the way as a “little guy” tackling big risk challenges.

About Gram Bikash Kendra

Society for Model Gram Bikash Kendra (GBK) is a microfinance institution registered under the West Bengal Society Registration Act, 1961. It began its work more than six years ago and has been working toward bringing about socio-economic changes in the lives of underprivileged people in West Bengal.

About Bankers without Borders

Bankers without Borders^® (BwB), Grameen Foundation’s volunteer initiative, is on a mission to help people move out of poverty. With a global reserve corps of more than 8,500 people, BwB works with business professionals and recent retirees, from a variety of countries and industries, who contribute their time, skills and experience to support social enterprises serving the poor and poorest. Through on-site technical assistance, training and mentoring, or remote consulting projects, BwB’s volunteers work to increase the scale, sustainability and impact of the organizations they support.