Tool for Developing a Financial Risk Management Policy
This toolkit shows MFIs how to design policies to manage financial risks. It shows how risks can be anticipated and mitigated, and if possible prevented. It also suggests how best to assign responsibility for monitoring risk and taking action. The toolkit goes beyond guidance and advice, providing a detailed policy template in Section 4, as well as a set of practical appendices that include several useful spreadsheets. The template and many of the appendices can be tailored to an individual MFI’s needs, which together offer:
- Checklists of issues to consider and steps to take when designing and implementing a financial risk management policy.
- Topic-specific sections on how to track risks, report risks, make key financial calculations and negotiate bank loans.
- Working spreadsheets that include labeled charts with active cells and spreadsheet functions
This toolkit is only a starting point in designing a comprehensive policy. For example, it does not provide in depth information on cash management operations, which warrant an independent treatment due to the detailed nature of the associated control issues. Instead, the toolkit provides broad guidance on the topic and raises awareness of cash management issues. Emphasis is placed on liquidity management, since the risk of illiquidity is considered the largest threat to the viability of any financial institution.
WWB have developed this toolkit because surprisingly few microfinance institutions (MFIs) have a formal financial policy, and industry resources on financial risk management are scarce. For fast-growing financial institutions, the establishment of standards and policies to manage cash and liquidity across large branch networks is crucial for viability in the short run, not to mention the long run. The toolkit is complemented by an interactive CD training tool that provides additional insights and capacity-building, using an MFI case scenario and the Excel spreadsheets can be downloaded separately.
The toolkit can be purchased on CD or as a downloadable pdf file. It is available in combination with the interactive training course for $75 or as a standalone item.