A collaboration of organizations in the microfinance industry recently released a risk management graduation model that would promote best practices for financial risk management.
The Risk Management Initiative in Microfinance, abbreviated as RIM, developed the standard in response to the challenges of rapid growth in the industry in recent years.
In the blog published on August 12, 2015, RIM director Kevin Fryatt wrote of the need to create sustained value to justify risk management. When well-executed, it proves its value to an organization by ensuring an acceptable level of risk in decision-making that will ultimately reach the group’s social goals. The risk level is established in advance.
The lack of an appropriate risk management framework hinders progress, according to Fryatt.
He summarises three key framework concerns:
- Scalability: addressing the capability of microfinance institutions to proactively manage new and complex risks as they grow.
- Suitability: tackling the different risks facing inclusive financial institutions.
- Availability: in the past, the framework has been proprietary and often out of reach of MFIs lacking the funds.
RIM calls for a more accessible, publicly available risk management framework as well as a broader approach. “As a multiple bottom line industry, the way we define and evaluate risk must consider both financial and social performance losses, rather than financial losses alone,” Fryatt wrote.
To meet the burgeoning challenges of the industry, RIM developed the Risk Management Graduation Model, or RMGM. It is a pathways-based standard for risk management with best practices for the various institutional tier levels.
RIM tested the model in 14 countries, in a variety of legal and operational contexts. It is publicly available for downloading at the RIM website.