RRisk comes from the vulgar latin ‘rescum’ which can be said to mean ‘risk’ or ‘danger’. RRisk is, in fact the uncertainty related to future event or future outcomes.

A TAXONOMY OF RISKS FOR MICROFINANCE Managerial Risks Liquidity Risk Credit Risk Market Risk Process Risk Operational Risk Residual Risks Business Risk Specifik Risk Generic Risk Financial Risk

The business Risk Business risk can be split into two components;  Specific risk (Product risk) ; this risk arises from the product and services offered.  Generic risk ; this risk derives from the location of the program

Financial Risk Financial Risk are classified as;  Liquidity risk  Credit Risk  Market Risks 1. Liquidity Risk is the risk arising from change in cash flow. It can be defined as the risk of not having cash to meet obligation, as well as the price or the opportunity cost or loss to bear in order to obtain cash

 The risk of liquidity management has a quantitative impact and a qualitative one.  The liquidity risk can be expressed by equation as follows ; CCFt = (ENC+EDC) + (UNC+UDC) where : CCFt : cash flow change in period t ENC : Expected non-discretionary change EDC : Expected discretionary change UNC : Unexpected non-discretionary change UDC : Unexpected discretionary change

Defined as the risk that the borrower will not pay back interest and /or principal.

Credit Risk Determined by two components : The Expected Loss(EL) Unexpected Loss(UL) Estimating future values of EL & UL is useful for forecasting the possible value of future losses

the estimate of EL related to credit exposure requires the evaluation of three variables : AE (the adjusted exposure) PD (probability of default) LGDR(loss given default rate) EL = AE x PD x LGDR

Credit risk management : Single loan { EL & UL } Loan Portfolio { EL & UL } Single loan EL (expected loss) 1. Creditworthinessanalysis: qualitative credit scoring models 2. Risk sharing UL (unexpected loss) 1. Monitoring process 2. Risk transfer

Loan portfolio EL (Expected Loss) 1. Creditworthiness analysis 2. Portfolio size 3. Risk sharing UL (Unexpected loss) 1. Monitoring process 2. Portfolio size 3. Portfolio diversification 4. Risk transfer

Market Risks Market risks are those risks arising from a change in market variables, typically interest rates ang exchange rates, that may negatively or positively affect the net profitability of a project or an institution

Process Risks Process risks can be distinguished into two main catogories : Operational risk Residual risk 1. Operational Risk Internal Factors: Process People System External factors Legal risks Coup d’etat others 2. Residual Risk External events not included in operational risks Catastropic risks Terrorist risks Reputational risks

Enough Already. Thank You