Types of risks faced by Microfinance Institutions
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
3. Market risk and
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.
Credit risk is directly related to the portfolio of the organistion and is one of the most significant risks from an MFI perspective. Whenever an MFI lends to a client there is an inherent risk of money not coming back, i.e. the client turning into a defaulter, this risk is called the Credit risk. Credit risk is simply the possibility of the adverse condition in which the clients does not pay back the loan amount. Credit risk is the most common risk for the MFI. The risk is of greater significance for MFIs as it has to deal with large number of clients with limited literacy. Further, MFI provides unsecured loans, i.e. loans without any collateral. In case a client default the MFI does not have any asset to meet its loss, which makes the credit even riskier.
MFIs fund their portfolio through external borrowings, through their own capital and through client savings that the MFI has mobilized. By giving a loan, an MFI also attracts risk to these sources of funds. It is therefore said that an MFI deals in public funds, acquired through banks, clients savings or through donors who trust the MFI to carry out its activities effectively. If an MFI loses money it may not be in a position to meet its own financial obligations to its depositors or lenders thereby becoming a defaulter itself. This results in loss of confidence of the funders and the direct financial loss for the MFI as the organisation loses not only interest but also its principal amount.
We have discussed why risk is inherent to the financial activities that financial institutions undertake. MFIs can neither afford to be too conservative on their lending as it will restrict their growth nor can they be over enthusiastic which will result in losses. Hence, an MFI need to have effective risk management system to have reasonable growth without letting the risk cross the thresholds of acceptable limits.
Credit risk emanates from internal as well as external factors. GTZ, a German development agency with a strong financial sector department, in its Risk Management Framework has classified Credit risk into two broad categories.
a. Transaction risk: which is related to the individual borrower with which the MFI is transacting. A borrower may not be trustworthy and capable of repaying loan which will result in loss of loan. All loss of loan related to delinquency of individual clients which can be because client’s migration, willful defaulting, business failure etc is called transaction risk.
b. Portfolio risk: Portfolio risk is related to factors, which can result in loss in a particular class or segment of portfolio. For example an MFI may lose a portfolio with a particular community, locality or a particular trade due to some external reasons. These reasons could be political, communal, failure of an industry /trade, etc.
Indicators of Credit Risk
Although credit risk is inherent to all loan of the MFI, it materializes in the loans which start showing overdues. An amount is called ‘overdue’ if it is not received by the MFI on its scheduled time. Every loan that an MFI provides have fixed schedule for repayment. This is called Repayment schedule, which provides the schedule of payment and acts as the reference point for the MFIs to estimate their overdues.
At the time of loan disbursement every client is given a repayment schedule, which shows the amount to be paid in each installment and the date of payment. If the amount is not received on or before the schedule date it is called overdue. If any loan has any amount overdue it is termed as a Delinquent loan or a case of delinquency.
MFIs try to have an objectives view of their credit risk and want to measure the extent of credit risk, which is the risk on their portfolio. There are various indicators, which help in measuring the credit risk profile of an MFI. Of these indicators portfolio at risk or commonly known as PAR is considered to be the most effective and is now very common indicator across MFIs. Apart from PAR, Repayment rate and Arrear rate are other ratios, which also provide information about the portfolio quality of an MFI.
PAR; Portfolio at risk or PAR tries to measure the amount of loan outstanding that the MFI stands to lose in case an overdue client does not pay a single installment from the day of calculation of PAR. PAR is the proportion of loan with overdue clients to the total loan outstanding of the organization.
PAR% = (Loan outstanding on overdue loans/Total loan outstanding of the MFI) x 100
PAR is further refined by MFIs to make it meaningful by including ageing in ilt. So MFIs often calculate PAR30, PAR 60, and PAR 90 etc. PAR30 means outstanding of all loans, which have overdues greater than 30 days as a proportion of total outstanding of the MFI, similarly PAR60 means outstanding of all loans, which have overdues greater than 60 days as a proportion of total outstanding of the MFI and so on and so forth.
One thing noticeable here is that overdue amount is not used anywhere in the formula. Overdues are simply taken as indicators to identify risky loans. Loan outstanding is used in the formula, as it is the maximum amount an MFI stands to lose if a client defaults. For example an MFI has five clients, each has taken 10,000 loan and have to repay on monthly basis and loan term is 10 months.
Therefore each month each one of them makes principal repayment of Rs 1,000. After five months of loan disbursement, it is necessary than 5 installments had to be paid which means each client should have paid back Rs 5,000 of principal amount. But say the actual repayment was as shown in the table below.
|Clients||Disbursed||Due||Principal paid||Principal overdue||Principal Outstanding|
To calculate PAR, we have to take the following steps;
• Identify loans with overdues; in the given example loan 1,2 and 4 have overdues
• Find outstanding on overdue loans and add; in example outstanding on overdue loans (1, 2 and 4) are 8,000 7,000 and 6,000. On adding them we get 21,000
• Divide sum of outstanding of overdue loans by total outstanding
Arrear rate; Arrear rate is the principal overdue as a proportion of the total loan outstanding of the MFI.
Arrear rate = (Total overdue/Total loan outstanding) x 100.
In the given example it is Rs 6,000/Rs 31,000 = 19.35%
This ratio tells the proportion of loan portfolio the MFI is currently losing, i.e. the principal amount that should have been recovered out of the total portfolio but has not been recovered.
Repayments rate; Repayment rate on the other hand is the ratio of the amount received by the organization against the total amount due.
Repayment rate ;(( Total principal collection during a period – prepayments)/Total amount due for the period) x 100
Prepayments, if any have to be deducted from the collections, as this amount was not due for the period. Prepayment is the principal amount paid by clients before it was due.
As mentioned earlier, all these ratios, MFIs and financial institutions lay maximum emphasis on PAR and consider it as the best indicator for risk. This is because PAR is a forward looking ratio and provides an estimate of the total loss that an MFI is likely to make should the risky clients default. While arrear rate and repayment rate only provide information of current loss and indicate the past performance. Arrear rate and repayment s rate are not able to capture the future risk.
Causes of High Credit Risk and Managing them
Now that we know that MFIs have to undertake the credit risk, the question is why different MFIs have different degrees of credit risk indicated by their different values of PAR? Even in the same geographic location with similar client profiles, different MFIs have different values of PAR, reflecting different degree of credit risk they are exposed to.
This leads us to an important conclusion that the credit risk is a function of multiple variables of which client profile is only one. In fact risk emanates from reasons external to the organization such as client running away, any accident happening with the client migration, loss of business/crop etc and reasons internal to the organization such as MFIs policies, processes, systems and culture. Some of the major reasons for delinquencies observed in MFIs are discussed below.
1. Poor MIS – MIS on loan outstanding, collection etc plays a critical role in generating reports and making them available in minimum time to the right people. If an MFI does not have a good MIS, it may not know how much to collect, it may not know its overdues or age-wise overdues. A with weak reporting system on overdue will result in delayed input on overdues to the top management and consequently result in delayed action by the top management. Sometimes weak MIS also results in generation of inaccurate report. If the correct and timely information is not generated and report the problem cannot be dealt with resulting in delinquencies getting aggravated.
2. Poor screening of borrowers – Poor choice of clients results in delinquencies. If client with bad reputation or history of defaults are selected then it can result in delinquencies
3. Weak appraisal – Poor or weak appraisal of loans is one of the major reasons for delinquencies. Before giving any loan, client’s repaying capacity, status of business and cash flows must be assessed. This helps in taking loan decision that whether a client should be a given a loan and about appropriate volume of loan. Poor appraisal can lead to loans going to unworthy clients or disbursement of higher amount loans. Loans given beyond repaying capacity puts clients in stress situation as they do not have sufficient income to repay installments resulting in delinquencies.
4. Unclear communication about product and methodology- Clear communication of policies and procedures is very important. If the clients do not know the policies and procedures it can result in confusion and delinquencies even if clients are capable of paying
5. No immediate follow-up – MFI having strong overdue follow up system can control overdues to a large extent. It also gives clear message to the clients that the MFI is serious on repayments and thus prevents the future occurrences. MFIs which are weak in overdue follow up give a signal that it is not serious in overdue collection resulting other clients to imitate. Also if the overdues are immediately followed up the chances of recovery are quite high but if the case becomes old then the chances of recovery also goes down.
6. Mixing other social activities with micro-finance – Sometimes delinquencies may also result if MFIs carry out grant based activities along with micro-finance with the same set of clients and with same staff. Mixing activities of two different nature confuses the client wherein one activity is being provided free while repayment is asked on micro-finance. This confuses the clients who may think that loans to be given to them may also be grants for them and they need not return it. Also enforcing repayments and discipline through a staff who is involved with the community in other social activities also will be very difficult and hence results in delinquencies.
7. Poor product – Delinquencies occur if the product is not suitably designed. If the repayments do not match with the cashflow of the client then it may result in delinquencies. Client cashflow means that when do the clients receive income and when they need to spend. In agriculture economy, clients may need to spend during sowing season and hence need money. While they may receive income during harvest. Other important point is if the repayment period is too long or too short or frequency of payments and installments size are not well thought off, it can all lead to delinquencies.
8. Natural disasters – Delinquencies can also happen as an aftermath of a natural dis aster such as flood, drought, earthquakes or epidemic.
9. Corruption – Corruption at field staff level such as taking bribe for loans or frauds can result in delinquencies. A staff taking favor from clients cannot enforce discipline or strict repayments. If the staff is committing fraud it will also show up as delinquency.
10. De-motivated employees – If the working conditions or incentive systems are not good, it will result in staff de-motivation and ultimately delinquencies. Motivated staff can make a lot of difference in enforcing policies in the field but of staff is de-motivated then they will not put sufficient efforts to enforce polices with the clients resulting overdues.
Thus we see that delinquencies do not occur, exclusively on account of client related reasons. Much of it can be attributed to internal systems and policies of the MFIs. It also means that if internal reasons related to the organization are taken care of then delinquencies can be controlled to a large extent. It is also important to understand why MFIs, investors and assessment agencies give so much importance to delinquencies and portfolio quality. This is one of the most (if not ‘the’ most) critical parameter for investors and assessors to rate and MFI and taking lending decisions. This is because portfolio is the most o important asset for the MFI and the only or the main source of its income. Any problem with the portfolio can adversely affect the MFI in a number of ways. In the next section we will see what different affects delinquency can have on an MFI.
Impact of Delinquencies
Delinquencies adversely affect the MFI in many ways. We will see how delinquencies can result in multi-dimensional affect for an MFI.
1. Loss of portfolio for the MFI – the major impact of delinquency is the loss of portfolio. The money given to a client by the MFI is lost if client defaults. MFI lends to clients and interests along with principal. However, default by client can result in even principal getting lost.
2. Loss of interest income – if a client does not repay its loan then the MFI loses interest income as well. Interest is the main source of income for an MFI and loss of it directly impacts its profitability and sustainability.
3. Growth hampered -an MFI having overdues has to invest lot of its time and other resources in recovering the overdues. This diverts the focus of the MFI from expansion and growth to controlling the overdues thereby hampering its growth.
4. Cost escalation – in order to recover overdues MFI has to spend its staff time on recovering overdues. Extra visits by staffs at various level also adds to travel costs.
5. De-motivated staff – increase in overdues de-motivates the staff. Staffs of a branch having no overdues are zealous as they expand the operations, get incentives and promotions. While staffs associated with bad portfolio are mostly engaged in overdue recovery, growth is slow; staff does not get incentives and instead may be criticized for poor performance resulting in de-motivation.
6. Cash flow mismanagement – MFI disburses new loans or meets its liabilities such as repayments of its owing to banks, through repayments that it receives from the field. If the repayments are timely then the MFI will not be able to collect enough cash from the field and hence will not be able to meet disbursement target or even pay back to its lenders. MFI plans its disbursements assuming certain amount of collection from the field but there are defaults then it disturbs these plans. This makes cash planning and fund management very difficult.
7. Loss credibility of the MFI – an MFI suffering from delinquency may lose reputation and credibility with other peer MFIs, lenders and donors. Most of the investors put a lot of weightage on portfolio quality as it is the most important asset for the MFI and this is where the investors ‘money will be utilized. Poor portfolio quality makes investors uninterested and fund raising becomes difficult.
8. Loss due to competition – MFI struggling with delinquencies may lose out on completions with other MFIs. While good MFIs may focus on growth, experiment with new products and other service, the MFI struggling with overdues has to concentrate on recovering overdues. It may also lose out on its staff and clients as the MFI is not performing well.
The above list of potential losses shows the multiple impacts or chain reaction delinquencies can spur. So we see that there is a lot to be lost if the credit risk is not proactively managed and contained within the acceptable limits.
Apart from the MFI itself, delinquencies also impacts those associated with it and otters as well. Some of the other impacts of delinquencies are;
1) Bad reputation to sector; Today micro –finance has gained lot of important and recognition as it has proved that good recoveries are possible even from the poor clients. If delinquencies become rampant across MFIs, the sector will lose its creditability and recognition. Investors, government, researchers, etc. Will lose interest and the industry will die out.
2) Staff employability; Micro-finance has created a lot of jobs. It has created jobs for moderately educated people. We see that now micro-finance is a specialized field. The good staff who have performed well get ready employability with other agencies across the sector. They command higher salaries and an exciting career. However, staff associated with delinquencies and poor portfolio loses out on such opportunities. If staff is dismissed from an MFI because of delinquencies it may be difficult for him/her to find jobs at other places. Hence delinquencies can be harmful for the staff at all levels too at the personal level.
3) Loss of reputations of an area; Delinquency in a particular area can result in loss of reputations a locality or region. Many finance companies ‘blacklist’ certain villages, areas or even districts because of delinquencies in those regions. So delinquencies of one MFI may result in even other MFIs not venturing in those areas and thus denying those areas of financial services.
MANAGING CREDIT RISK
Clarity of vision
We saw that delinquencies have wide spread impacts and are harmful not just for the MFI but also for others. It is therefore important to manage credit risk. In order keep credit risk under acceptable limits an MFI must have clarity on its business. From visions and missions statement to the fine policies for the day-to-day operations, everything they should be clearly said/written and documented to avoid any confusion. A clear mission statement gives the right direction to the organization and it does not mix up too many things creating confusion. Clear mission helps the MFI defining its path and where it wants to go. Lack of clarity in mission can result in loss of focus. Such an MFI may get involved in diverse activities, without knowledge of what it wants to achieve.
Segregation of Business functions
MFIs should also be aware that different interventions on the field would have impact on each other. It is therefore, important to maintain clear segregations among programmes of different natures. The social activities should be separate from micro-finance and the community should not be confused with the two programmes.
Appropriate product designing can also curb credit risk to a significant extent. A poorly designed product puts stress on the client who may not be able to repay the amount. The products have to be designed suitable to the local livelihood context and general household cashflow of the target group. In general it is good to have frequent repayments as it maintains contacts with clients. If the frequently is too low it results in loss of contact with client and escalates the risk of delinquencies.
The higher the frequency of repayments the better it is from risk perspective however the repayments has to match the cashflow of the client group. One may not go for a daily repayment if people do not earn on daily basis or do not have surplus cash on daily basis. But repayments not exceeding monthly are generally recommended. This means that at least one installment must be collected each month, a frequency of less than this can enhance risk.
The importance of a good MIS cannot be overemphasized. MIS collects data and transforms it into the information which can ensure decision making. MIS should be able to generate overdue information almost on a daily basis. This information should also be reported up to Head Office level in a timely manner. If information takes too long to reach the right people, it loses its importance. A strong MIS is very important from the perspective of controlling risk as unless someone knows about delinquency, one cannot take actions to manage it.
A strong MIS is characterized by regular and focused record keeping and reporting system. Many people often confuse that a good MIS always means an elaborate software and computer driven system. A strong MIS may not necessarily mean big software. Many MFIs in India have grown to fairly large size with manual MIS and their manual MIS were very strong.
A good MIS means a systematic and simple record keeping system, which can generate timely and accurate reports needed for decision making and making the information available to the right people at the right time. A simple and systematic record-keeping system could also be manual. It should be able to generate important reports such as on disbursements, collections, demand/due, overdue, prepayments and loan cycles. Any field staff going to field should know how much to collect from a group, how much are the overdues/prepayments. Branch Manager should have the information on disbursements and repayments, saving collections, number of clients, overdues, ageing etc. Similarly, Head Office should get details of all branches/units on disbursements, collections and number of borrowers without much time lag. If the information is not available in time then effective decision-making is not possible and thereby increasing risk.
Internal Control System
Delinquencies also occur on account of policies not being followed or misappropriations. Therefore, a strong internal control system is very important for any financial institution. MFIs deal in a lot of cash and hence without proper monitoring anyone in the system can try to take advantage. Regular monitoring by staffs at various levels as well as an independent internal audit at regular frequency can significantly control risk.
We had earlier divided credit risk into two categories, transaction risk and portfolio risk. We will now discuss on management of these two categories of credit risk.
Managing Transaction risk
Transaction risk is related to the individual borrower with which the MFI is transacting. A borrower may be trustworthy, holds good intentions to repay and may be capable of repaying loan or the borrower may not be trustworthy or capable of paying, which will result in loss of loan. All loss of loan related to delinquency of individual clients because of client’s migration, willful defaulting, business failure, etc. is called Transaction risk.
As transaction risk is related to individual clients, it has to be controlled by having right policies at various stages of loans. Transaction risk management starts from the first step of client selection. MFIs focus on selecting right clients who match their criteria. NFIs develop clear policies and procedures for client identification and selection. The staff at MFI has to be very clear on the process of client selection and group information. It has to be seen that clients who do not enjoy trust of the community or have dubious past do get into the system. Once the clients have been identified, the next step is of grouping formation. At the time of group formation it is extremely necessary that a proper training covering all aspects of the MFI and its products, procedures and other policy are clearly told to the clients. After the training it is also necessary to ensure that clients have understood all procedures and there is no confusion. If the policies of the organization are not clear it can lead to delinquencies in the future. MFIs have procedures of training the clients and then conducting a test to verify the client’s understanding.
Once the group has qualified the test the next step is of taking loan application and loan appraisal. It is the responsibility of the field staff to see that all information is filled according to the policies in the application form. These policies could be such as loan amount as per the cycle, loan purpose should be verify the group member should agree to the loan amount, past repayment history should be good, client’s family income expenditure should be verified or any other policy that the MFI has. Apart from the loan application all other documentation has to be in order this may include taking client id, address and promissory notes.
Once the application has been prepared it has to be appraised by a senior person. All loans have to be appraised according to the merit of the enterprise in which it is being invested. While appraising a loan application casflows, income of household and repaying capacity of the household has to be seen. Often it is seen that MFI instead of focusing on the cashflow from the enterprise in which loan is being invested: focus on the casflow of the entire family. The MFIs then access the household expenditures and based on that decide the final amount to be disbursed. Also past repayment history of the client is taken into consideration while taking loan decisions. Other parameters used in loan appraisal are feedback from peers, experience in business, permanent address of client and other loans if any from other sources. MFIs also take extra precautions while funding a new business; MFIs are more comfortable in lending in expansion of existing business rather than investment in a new business. Strong loan appraisal often controls the transaction risk to a large extent. After the appraisal, the case may be presented to a Credit Officer and Area Manager. Or sometimes it could be just branch level committee or committee composition can also change with the size of loan. This means that for loans above certain size credit committee could be at regional level rather than branch level or even head office level for very high loans. There is no fixed rule about the credit committee composition by the main idea is that every loan that is disbursed should be a very though out decision taking all potential risk aspects into consideration.
For larger size loans particularly in individual loans, MFI may resort to taking some security such as personal guarantees, taking post-dated cheques or even some assets. These guarantees and securities also help in managing transaction risks.
After disbursement of loan many MFIs also carry out loan utilization checks to see if the loan has been utilized for the purpose the loan has been given.
Once the loan has been approved the disbursement has to take place strictly in accordance with the organization policies. MFIs have policies of disbursement through cheque or cash, disbursement to take place only at branch or lonely at group meetings, signatures of clients to be taken at the time of disbursement, issuing of passbook and issue of repayment schedule at the time of disbursement. Again a clear disbursement procedure can help in controlling frauds or corruption at the time of disbursement and can control transaction risk.
After disbursement there have to be clear policies on collection and deposition of money. There are lots of delinquencies on account of unclear or weak collecting and money handling policies. A clear policy such as where collection should take place, how money has to be transferred and depositing money in bank can also help in controlling risk related to frauds and misappropriation.
Transaction risks can be managed effectively with strong internal systems such overdue management system, strong management information system (MIS) as explained above. Strong overdue management system starts with having a good MIS. Once the information is made available the information is analyzed and decisions are taken. With availability of accurate information organization can manage its delinquencies effectively by framing clear policies on overdue management.
Overdue management means what actions have to be taken by different levels in overdue situations. It is important to acknowledge here that field staffs can play a vital role in managing overdues as field staff is the first one to know whenever a delinquency occurs. Field staff who are well trained can manage the overdue situation well thereby cutting the transaction risk.
Clear policies on overdue management will help the field staff in reacting to overdue situation in an appropriate manner. MFIs have policies of enforcing group pressure such as field staff may hold longer meeting to discuss overdue, can ask other members to pool in money. Field staff may call other colleagues, to visit client house etc. Pressure can also be applied by not disbursing fresh loan to a defaulting group or not increasing the loan size in the next cycle. It is important to act sensitive and knowledgeable here – pressure to recover the loan can cause risks itself, e.g. devastating the community or driving the creditor to desperate actions which will not help anybody. The right way to manage collection – i.e. manage the credit risk signaled by overdues –depends on accurate assessment of the situation at hand.
It is seen that MFI have developed appropriate e policies to handle overdues in different age class differently. For example, overdues above 30 days have to be followed up by Branch Manager along with the concerned field staff. Overdue above 60 days will be followed up by Area Manager, etc.
Immediate response by the MFI to overdue situation and regular follow up is extremely important in cutting down credit risks as it gives strong signal to the clients that the MFI is very serious on overdues. If the MFI does not react to overdues then this may spread the overdue problems to other clients/groups who will start taking advantage of the weak credit culture of the organization.
Managing Portfolio Risk
Portfolio risk is related to factors, which can result in loss in a particular class or section of portfolio rather than an individual. For example an MFI may lose a portfolio with a particular community or a particular trade due to some external reasons. These reasons could be political, communal, failure of an industry/trade etc. Portfolio risks are low probability and high impact kind of risks, it is necessary for the MFIs to manage this risk as they can impact a large portfolio.
For managing portfolio risk it is very important that MFI diversifies its portfolio. Funding/assessing agencies consider a concentrated portfolio as a big risk. The portfolio may be concentrated geographically or in a particular trade or with a particular group of people. Whenever the portfolio is concentrated over any parameter, it increases the risk. Failure or adversity with the particular parameter on which the portfolio is concentrated can seriously impact the MFI. If the portfolio of the organization is diversified geographically, or usage of loan it reduces the risk. For example if the 100% of portfolio of the organization is in agriculture in one or two blocks of a district then in case of drought or crop failure for any other reasons will impact 100% of MFIs. Similarly, if an MFI has a major proportion of its portfolio in a particular city then in any adverse situation such as bandh or riots will impact a major proportion of the MFIs portfolio. Therefore it is important that MFIs keep their portfolio diversified so that impact on a particular parameter will impact only limited proportion of the MFIs total portfolio.
It is necessary that MFI has transparent policies on interest rates, fees, penalties and all other procedures. Clients should not feel that there are hidden charges or any other policy of exploit them. It is seen that if full transparency with clients is maintained it can reduce the risk of client dissatisfaction and sudden adverse reactions. It is important to maintain transparency from the ethical point of view as well. MFIs deal with vulnerable sections of the society; it is necessary for the MFIs to carry out business ethically. In order to control risk from any external entities such as administration, it is important to maintain relations with the other stakeholders such government agencies, local politicians. It is important to also inform about the MFI, its objectives and working methodology. Working in isolation may sometimes spread inaccurate information in the society or other stakeholders may not understand about the activities of the MFI, which can go negative for the organization.
MFIs in order to control risk may adopt the strategy of avoiding or restricting the exposure. Some category of business, which are considered risky or certain locations which are risky because of reasons such as frequent occurrences of natural disaster or security issues, can be avoided by the MFI or even if it wants to work in such areas or with such business then exposure can be restricted to certain percent of the total portfolio
Credit risk is definitely the most common risk for the MFIs but the with the right policy framework, it can be kept under acceptable levels. But credit risk is not the only risk that MFIs face.
The next category of risk that we will discussed in the next post is operational risk.