Risk Management of Microfinance Institutions

Abstract

The primary objective of this study is to determine the effectiveness of risk management of microfinance institutions. The researcher used descriptive method wherein a survey questionnaire was employed. Frequency and percent distribution, weighted mean, analysis of variance (ANOVA), and f-ratio were used in the statistical evaluation. The study reveals that majority of the respondents were rank and file employees, had 1 year and below of work experience. Most of them had attended 1-5 number of trainings and had 1 year and below year in service. The assessments on the effectiveness of risk management of microfinance institutions in terms of risk governance and culture, risk strategy and objective-setting, risk in execution, risk information and communication and reporting, and monitoring were effective. There is no significant difference when the respondents are grouped according to profile, and everybody accepts the hypothesis. The researcher recommends that fringe benefits, like extra allowance or bonus may be given to the employees. Set up a dedicated team of credit appraiser who are centralized in the Head Office to ensure that the standards in approving loans are being observed. Share and agree with similar institutions that pertinent borrower information will be solely used for credit-assessment purposes, and continuously have a membership to credit information-collecting bodies. Microfinance institutions should impose strict compliance to loan documentations; communicate early and often on problem loan issues; use covenant breaches and waivers to take corrective actions; and respond to material breaches quickly and proactively. Future researchers may consider other areas of credit risk in microfinance institutions.