Modul 4: Keuangan Mikro dalam Pemulihan Penghidupan Keuangan Mikro dan Manajemen Bencana Modul 4: Keuangan Mikro dalam Pemulihan Penghidupan

Tujuan Untuk memahami: kegiatan pemulihan penghidupan paska bencana (dibahas secara lebih rinci dalam Modul 5) bagaimana sebuah LKM bisa memodifikasi produk-produk standarnya untuk menanggapi suatu situasi bencana, seperti melalui penjadwalan ulang pinjaman dan pembiayaan ulang pinjaman berbagai produk baru yang bisa dipertimbangkan untuk menanggapi keadaan darurat, seperti produk khusus dan pengaturan leasing bagaimana LKM-LKM dapat berhubungan secara positif dengan berbagai instansi penyelamatan yang menawarkan intervensi keuangan seperti bantuan tunai dan kerja-demi-uang SLIDE 2: Objectives Following completion of this module, participants should understand how a natural disaster might affect an MFI, and the strategies an MFI can implement to mitigate the risks.

Topik - topik Perkenalan berbagai Kegiatan Perbaikan Penghidupan Berbagai produk Keuangan Mikro untuk Konteks Paska Bencana Berbagai Modifikasi Produk Paska Bencana Berbagai Produk Keuangan Mikro Baru Paska Bencana Berbagai Produk Keuangan Lainnya Paska Bencana Rangkuman SLIDE 3: Topics Note that the first three topics in the discussion are for learning and background. However, there is little point simply understanding these things if it does not result in a concrete action plan. Therefore, the Key Output of this module is that the MFI prepares a Disaster Preparedness Plan (Topic 4).

1. Perkenalan kepada berbagai Kegiatan Perbaikan Penghidupan Penghidupan terdiri dari: berbagai kecakapan, harta/aset (termasuk materi dan sumber daya sosial), dan berbagai kegiatan yang dibutuhkan sebagai alat memenuhi kehidupan. Penghidupan itu berkelanjutan bilamana bisa menangani dan memulihkan diri dari tekanan dan goncangan, memelihara atau meningkatkan harta dan kewajibannya tanpa melemahkan sumber daya alam dasar. U. of Sussex, digunakan oleh DFID dan World bank SLIDE 4: PART 1. Overview of Risks Faced by MFIs Estimated Duration: 10 minutes Technique: Lecture Facilitator Note: Be careful that participants do not become side-tracked by over-discussing the detail of the three risk categories mentioned on this slide, as it is the fourth risk category - “EXTERNAL RISKS” (slide 5) - that is the main point of interest in this module. Institutional Risks: Governance: e.g. lack of focus, failing to protect the MFIs assets, allowing sub-standard financial reporting. Dependence on donors: The question of sustainability. What happens to the MFI if donors withdraw their support? Mission drift: Who is the MFI supposed to serve? What is the MFI meant to do? E.g. Is the MFI a financial intermediary or a generalist development NGO? Reputation: Does the community-at-large respect the MFI as a provider of financial services? Do lenders and investors respect the MFI as a trustworthy partner. Operational Risks: Credit risk: Quality of the loan portfolio. Does the MFI expect and demand that loans are repaid. Do the operational systems ensure this? Liquidity risk: Is the MFI able to pay its creditors in a timely manner? Transaction risk (negligence, mismanagement, errors): Is transaction data managed effectively? Are reports readily available? Is the data readily consolidated? Fraud: Are there systems in place to minimize opportunity for fraud and theft? Financial Risks: Assets and liabilities: How “strong” is the Balance Sheet? To what extent do assets exceed liabilities? Interest rate, exchange rate: Does the MFI use different currencies for different purposes? (e.g. funds sourced in US$ but lent out in local currency). If so, what will be the effect of a significant change in exchange rate? To date, capacity-building and technical assistance for MFIs has focused on improving their ability to manage these types of risks. Less work has been done on managing EXTERNAL RISKS (see slide 5). Glossary items: Governance Risk Management

Kegiatan Promosi Penghidupan – Contoh Kegiatan promosi penghidupan bertujuan membantu sipenerima secara ekonomis menjadi percaya atas kemampuan diri sendiri. Kredit dan tabungan adalah produk keuangan mikro tradisional. Hibah dan kerja-demi-uang adalah umum dalam konteks bencana. LKM perlu mengelola secara hati-hati koeksistensi dari produk- produk ini. Keuangan Non- Keuangan Kredit Tabungan Leasing Kerja-demi-uang Bantuan uang Pelatihan ketrampilan Layanan pekerjaan Layanan pemasaran Layanan pengembangan usaha Hibah sejenis SLIDE 4: PART 1. Overview of Risks Faced by MFIs Estimated Duration: 10 minutes Technique: Lecture Facilitator Note: Be careful that participants do not become side-tracked by over-discussing the detail of the three risk categories mentioned on this slide, as it is the fourth risk category - “EXTERNAL RISKS” (slide 5) - that is the main point of interest in this module. Institutional Risks: Governance: e.g. lack of focus, failing to protect the MFIs assets, allowing sub-standard financial reporting. Dependence on donors: The question of sustainability. What happens to the MFI if donors withdraw their support? Mission drift: Who is the MFI supposed to serve? What is the MFI meant to do? E.g. Is the MFI a financial intermediary or a generalist development NGO? Reputation: Does the community-at-large respect the MFI as a provider of financial services? Do lenders and investors respect the MFI as a trustworthy partner. Operational Risks: Credit risk: Quality of the loan portfolio. Does the MFI expect and demand that loans are repaid. Do the operational systems ensure this? Liquidity risk: Is the MFI able to pay its creditors in a timely manner? Transaction risk (negligence, mismanagement, errors): Is transaction data managed effectively? Are reports readily available? Is the data readily consolidated? Fraud: Are there systems in place to minimize opportunity for fraud and theft? Financial Risks: Assets and liabilities: How “strong” is the Balance Sheet? To what extent do assets exceed liabilities? Interest rate, exchange rate: Does the MFI use different currencies for different purposes? (e.g. funds sourced in US$ but lent out in local currency). If so, what will be the effect of a significant change in exchange rate? To date, capacity-building and technical assistance for MFIs has focused on improving their ability to manage these types of risks. Less work has been done on managing EXTERNAL RISKS (see slide 5). Glossary items: Governance Risk Management

2. Berbagai Produk Keuangan Mikro untuk Konteks Paska Bencana Kita dapat membagi ke dalam tiga kategori: Modifikasi terhadap berbagai produk keuangan mikro yang tersedia. Berbagai produk baru keuangan mikro. Berbagai produk keuangan yang ditawarkan para instansi penyelamatan pada umumnya yang bukan produk ‘keuangan mikro’, tetapi yang lebih memerlukan koordinasi secara hati-hati antara instansi penyelamatan dengan LKM untuk menghindari hasil yang negatif. SLIDE 4: Topic 1. Overview of Risks Faced by MFIs Estimated Duration: 10 minutes Technique: Lecture Facilitator Note: Be careful that participants do not become side-tracked by over-discussing the detail of the three risk categories mentioned on this slide, as it is the fourth risk category - “EXTERNAL RISKS” (slide 5) - that is the main point of interest in this module. Institutional Risks: Governance: e.g. lack of focus, failing to protect the MFIs assets, allowing sub-standard financial reporting. Dependence on donors: The question of sustainability. What happens to the MFI if donors withdraw their support? Mission drift: Who is the MFI supposed to serve? What is the MFI meant to do? E.g. Is the MFI a financial intermediary or a generalist development NGO? Reputation: Does the community-at-large respect the MFI as a provider of financial services? Do lenders and investors respect the MFI as a trustworthy partner. Operational Risks: Credit risk: Quality of the loan portfolio. Does the MFI expect and demand that loans are repaid. Do the operational systems ensure this? Liquidity risk: Is the MFI able to pay its creditors in a timely manner? Transaction risk (negligence, mismanagement, errors): Is transaction data managed effectively? Are reports readily available? Is the data readily consolidated? Fraud: Are there systems in place to minimize opportunity for fraud and theft? Financial Risks: Assets and liabilities: How “strong” is the Balance Sheet? To what extent do assets exceed liabilities? Interest rate, exchange rate: Does the MFI use different currencies for different purposes? (e.g. funds sourced in US$ but lent out in local currency). If so, what will be the effect of a significant change in exchange rate? To date, capacity-building and technical assistance for MFIs has focused on improving their ability to manage these types of risks. Less work has been done on managing EXTERNAL RISKS (see slide 5). Glossary items: Governance Risk Management

3. Berbagai Modifikasi Produk Paska Bencana Penyesuaian Pinjaman Penjadwalan ulang Pembiayaan ulang Pengampunan pinjaman Fleksibilitas dalam metodologi pemberian pinjaman Tabungan Akses mudah dan segera atas simpanan Mempertautkan produk tabungan dengan program kerja-demi-uang Brainstorm: Apa perbedaan antara ‘penjadwalan ulang pinjaman’ dengan ‘pembiayaan ulang pinjaman’? Apa perbedaan antara ‘pengampunan pinjaman’ dengan ‘penghapusan pinjaman’? Apa pendapat anda mengenai ‘pengampunan pinjaman? SLIDE 4: Topic 1. Overview of Risks Faced by MFIs Estimated Duration: 10 minutes Technique: Lecture Facilitator Note: Be careful that participants do not become side-tracked by over-discussing the detail of the three risk categories mentioned on this slide, as it is the fourth risk category - “EXTERNAL RISKS” (slide 5) - that is the main point of interest in this module. Institutional Risks: Governance: e.g. lack of focus, failing to protect the MFIs assets, allowing sub-standard financial reporting. Dependence on donors: The question of sustainability. What happens to the MFI if donors withdraw their support? Mission drift: Who is the MFI supposed to serve? What is the MFI meant to do? E.g. Is the MFI a financial intermediary or a generalist development NGO? Reputation: Does the community-at-large respect the MFI as a provider of financial services? Do lenders and investors respect the MFI as a trustworthy partner. Operational Risks: Credit risk: Quality of the loan portfolio. Does the MFI expect and demand that loans are repaid. Do the operational systems ensure this? Liquidity risk: Is the MFI able to pay its creditors in a timely manner? Transaction risk (negligence, mismanagement, errors): Is transaction data managed effectively? Are reports readily available? Is the data readily consolidated? Fraud: Are there systems in place to minimize opportunity for fraud and theft? Financial Risks: Assets and liabilities: How “strong” is the Balance Sheet? To what extent do assets exceed liabilities? Interest rate, exchange rate: Does the MFI use different currencies for different purposes? (e.g. funds sourced in US$ but lent out in local currency). If so, what will be the effect of a significant change in exchange rate? To date, capacity-building and technical assistance for MFIs has focused on improving their ability to manage these types of risks. Less work has been done on managing EXTERNAL RISKS (see slide 5). Glossary items: Governance Risk Management

Berbagai Modifikasi Produk Pinjaman Penjadwalan ulang: memperpanjang jangka waktu pinjaman atau melonggarkan jadwal pembayaran Pembiayaan ulang: melunasi pinjaman (bermasalah) dengan mengeluarkan pinjaman baru. Ini memperkenankan para pelanggan untuk mulai lagi membayar angsuran pinjaman mereka, dengan harapan, akan terus berlangsung hingga pinjaman lunas. Pengampunan pinjaman: suatu hibah de facto. Pengampunan pinjaman bermanfaat bagi orang yang berbeda pada kadar yang berbeda, hal ini dapat menyebabkan ‘keengganan membayar kembali’ pada pinjaman-pinjaman selanjutnya, dan dapat menjurus pada dekapitalisasi serius dari dana pinjaman. Metodologi pemberian pinjaman: Walaupun pemberian pinjaman kepada kelompok menghasilkan pembayaran kembali yang tinggi dalam keadaan normal, program seperti itu dapat memperbesar kerugian sewaktu terjadi tekanan ekonomi yang meluas. SLIDE 4: Topic 1. Overview of Risks Faced by MFIs Estimated Duration: 10 minutes Technique: Lecture Facilitator Note: Be careful that participants do not become side-tracked by over-discussing the detail of the three risk categories mentioned on this slide, as it is the fourth risk category - “EXTERNAL RISKS” (slide 5) - that is the main point of interest in this module. Institutional Risks: Governance: e.g. lack of focus, failing to protect the MFIs assets, allowing sub-standard financial reporting. Dependence on donors: The question of sustainability. What happens to the MFI if donors withdraw their support? Mission drift: Who is the MFI supposed to serve? What is the MFI meant to do? E.g. Is the MFI a financial intermediary or a generalist development NGO? Reputation: Does the community-at-large respect the MFI as a provider of financial services? Do lenders and investors respect the MFI as a trustworthy partner. Operational Risks: Credit risk: Quality of the loan portfolio. Does the MFI expect and demand that loans are repaid. Do the operational systems ensure this? Liquidity risk: Is the MFI able to pay its creditors in a timely manner? Transaction risk (negligence, mismanagement, errors): Is transaction data managed effectively? Are reports readily available? Is the data readily consolidated? Fraud: Are there systems in place to minimize opportunity for fraud and theft? Financial Risks: Assets and liabilities: How “strong” is the Balance Sheet? To what extent do assets exceed liabilities? Interest rate, exchange rate: Does the MFI use different currencies for different purposes? (e.g. funds sourced in US$ but lent out in local currency). If so, what will be the effect of a significant change in exchange rate? To date, capacity-building and technical assistance for MFIs has focused on improving their ability to manage these types of risks. Less work has been done on managing EXTERNAL RISKS (see slide 5). Glossary items: Governance Risk Management

Berbagai Modifikasi Produk Tabungan Pelajaran yang terungkap: Tidak semua pelanggan LKM menarik dana tabungan mereka segera setelah terjadinya suatu bencana. Didaerah-daerah yang sering terkena dampak bencana, tabungan pribadi umumnya digunakan untuk persiapan menangani bencana dan selama tahap pemulihan, daripada selama tahap penyelamatan. Permintaan untuk layanan simpanan ada bahkan selama tahap penyelamatan dan pemulihan awal (terutama bila dikaitkan dengan program kerja-demi-uang). Tidak semua LKM dapat menawarkan produk-produk tabungan ‘atas permintaan’ yang fleksibel. SLIDE 4: Topic 1. Overview of Risks Faced by MFIs Estimated Duration: 10 minutes Technique: Lecture Facilitator Note: Be careful that participants do not become side-tracked by over-discussing the detail of the three risk categories mentioned on this slide, as it is the fourth risk category - “EXTERNAL RISKS” (slide 5) - that is the main point of interest in this module. Institutional Risks: Governance: e.g. lack of focus, failing to protect the MFIs assets, allowing sub-standard financial reporting. Dependence on donors: The question of sustainability. What happens to the MFI if donors withdraw their support? Mission drift: Who is the MFI supposed to serve? What is the MFI meant to do? E.g. Is the MFI a financial intermediary or a generalist development NGO? Reputation: Does the community-at-large respect the MFI as a provider of financial services? Do lenders and investors respect the MFI as a trustworthy partner. Operational Risks: Credit risk: Quality of the loan portfolio. Does the MFI expect and demand that loans are repaid. Do the operational systems ensure this? Liquidity risk: Is the MFI able to pay its creditors in a timely manner? Transaction risk (negligence, mismanagement, errors): Is transaction data managed effectively? Are reports readily available? Is the data readily consolidated? Fraud: Are there systems in place to minimize opportunity for fraud and theft? Financial Risks: Assets and liabilities: How “strong” is the Balance Sheet? To what extent do assets exceed liabilities? Interest rate, exchange rate: Does the MFI use different currencies for different purposes? (e.g. funds sourced in US$ but lent out in local currency). If so, what will be the effect of a significant change in exchange rate? To date, capacity-building and technical assistance for MFIs has focused on improving their ability to manage these types of risks. Less work has been done on managing EXTERNAL RISKS (see slide 5). Glossary items: Governance Risk Management

4. Berbagai Produk Keuangan Mikro baru Paska Bencana (1) Brainstorm: Menurut pendapat anda ‘produk keuangan mikro baru’ apa saja yang relevan dalam konteks paska bencana? SLIDE 12: Impact on the Balance Sheet (2) BRAINSTORM: Distribute the handout “Sample Balance Sheet”. Lead the participants through some of the following: Following a major natural disaster, What might happen to the figures for “Cash and bank accounts”, “Short-term investments”, “Loan Portfolio”, “Loan Loss Reserve”, “Property and Equipment”, “Short-term borrowing”, “Client Savings”. Indicate where funds flow from one item to another. Which items would you expect to not change? (e.g. Long-term investments, Long-term debt) See following slide for suggested answers.

Berbagai Produk Keuangan Mikro baru Paska Bencana (2) Berbagai produk baru keuangan dalam konteks paska bencana termasuk: pinjaman darurat (atau pinjaman pengganti aset) pinjaman rekonstruksi microleasing Brainstorm: Sehubungan dengan kemampuan pelanggan untuk membayar hutang baru, LKM punya pertimbangan apa saja berkenaan dengan penawaran pinjaman pengganti aset atau pinjaman rekonstruksi? SLIDE 12: Impact on the Balance Sheet (2) BRAINSTORM: Distribute the handout “Sample Balance Sheet”. Lead the participants through some of the following: Following a major natural disaster, What might happen to the figures for “Cash and bank accounts”, “Short-term investments”, “Loan Portfolio”, “Loan Loss Reserve”, “Property and Equipment”, “Short-term borrowing”, “Client Savings”. Indicate where funds flow from one item to another. Which items would you expect to not change? (e.g. Long-term investments, Long-term debt) See following slide for suggested answers.

Microleasing Dalam pengaturan leasing sederhana: Orang yang menyewakan (perusahaan leasing atau LKM) menyewakan aset kepada pelanggan dengan imbalan yang dibayar secara angsuran. Orang yang menyewakan menguasai hak atas aset, sehingga aset tidak dapat dijual/dipertanggungkan/digadaikan. Tidak diperlukan agunan kecuali jika diminta proyeksi arus kas untuk persetujuan perjanjian leasing. Jangka waktu leasing bisa direntangkan hingga 70% dari perkiraan sisa umur aset. Pada jatuh tempo leasing, pelanggan punya pilihan untuk membeli aset dari orang yang menyewakan dengan harga yang disesuaikan dengan nilai sisa yang sudah disepakati lebih dulu. SLIDE 12: Impact on the Balance Sheet (2) BRAINSTORM: Distribute the handout “Sample Balance Sheet”. Lead the participants through some of the following: Following a major natural disaster, What might happen to the figures for “Cash and bank accounts”, “Short-term investments”, “Loan Portfolio”, “Loan Loss Reserve”, “Property and Equipment”, “Short-term borrowing”, “Client Savings”. Indicate where funds flow from one item to another. Which items would you expect to not change? (e.g. Long-term investments, Long-term debt) See following slide for suggested answers.

Pelajaran yang Terungkap pada Microleasing Leasing memudahkan penyaringan pelanggan pada masa sulit. Uang muka dapat mengurangi risiko orang yang menyewakan, karena orang yang menyewakan memikul seluruh risiko usaha pelanggan. Pilihan para pelanggan keuangan mikro yang layak memperoleh pinjaman jangka panjang membantu menurunkan risiko jika uang muka tidak memungkinkan. Leasing memberikan pilihan kepada orang miskin untuk melakukan variasi kegiatan penghidupan. Leasing dapat membantu menyediakan hibah tanpa menciptakan distorsi pasar dan membantu menciptakan aset produktif. Tidak semua LKM dapat dan harus menyediakan microleasing, terutama setelah bencana. Microleasing sesuai bila ditawarkan melalui kemitraan yang terdiri dari LKM, perusahaan leasing, pedagang dan pengusaha pabrik. SLIDE 12: Impact on the Balance Sheet (2) BRAINSTORM: Distribute the handout “Sample Balance Sheet”. Lead the participants through some of the following: Following a major natural disaster, What might happen to the figures for “Cash and bank accounts”, “Short-term investments”, “Loan Portfolio”, “Loan Loss Reserve”, “Property and Equipment”, “Short-term borrowing”, “Client Savings”. Indicate where funds flow from one item to another. Which items would you expect to not change? (e.g. Long-term investments, Long-term debt) See following slide for suggested answers.

5. Berbagai Produk Keuangan lainnya Paska Bencana Produk keuangan lainnya dalam konteks paska bencana termasuk: Bantuan uang tunai Kerja-demi-uang SLIDE 12: Impact on the Balance Sheet (2) BRAINSTORM: Distribute the handout “Sample Balance Sheet”. Lead the participants through some of the following: Following a major natural disaster, What might happen to the figures for “Cash and bank accounts”, “Short-term investments”, “Loan Portfolio”, “Loan Loss Reserve”, “Property and Equipment”, “Short-term borrowing”, “Client Savings”. Indicate where funds flow from one item to another. Which items would you expect to not change? (e.g. Long-term investments, Long-term debt) See following slide for suggested answers.

Hibah dan Pinjaman dalam Perbaikan Penghidupan Walaupun ada keprihatinan dari masyarakat keuangan mikro, hibah sering diberikan kepada para pengusaha mikro setelah bencana alam. Rekomendasi yang menyeluruh adalah harus adanya koordinasi yang terencana dan erat antara para instansi penyelamatan dengan LKM untuk memastikan adanya interaksi efektif antara hibah dengan produk pinjaman. Studi kasus : Bacalah studi kasus pada Handout 4.15. Buatlah daftar apa saja yang menurut anda adalah alasan kunci bagi keberhasilan program hibah/pinjaman, dan jelaskan pendapat anda kepada kelompok.

Pedoman untuk Hibah dan Pinjaman Hibah tidak cocok untuk semua situasi bencana. Jangan campuradukkan pinjaman dan hibah dalam satu perjanjian. Bila dimungkinkan, tawarkan hibah melalui mitra penyelamatan dan pinjaman melalui LKM. Bersikaplah transparan dalam menentukan kriteria pemilihan penerima hibah. Pemberian hibah hanya untuk jangka waktu yang sangat pendek. Pemberian hibah seharusnya sekali saja, dan harus ada proses ‘peningkatan’ ke arah mekanisme pasar seperti kredit mikro. Ajaklah para penerima berpartisipasi dalam penggantian aset. Lihat FDC Brief 3, ‘Hibah dan pinjaman untuk perbaikan mata pencaharian setelah bencana alam’

Kerja-demi-uang Program ini memfokuskan pada kegiatan pembersihan, perbaikan atau rekonstruksi setelah bencana. Program ini mempekerjakan buruh harian untuk jangka waktu tertentu dan upah harian yang sudah ditetapkan. Seringkali proyek ini merupakan kegiatan yang sudah dikenal di masyarakat.

Kerja-demi-uang (CFW): Pedoman bagi LKM LKM seharusnya tidak terlibat langsung dengan CFW karena: akan melibatkan berbagai kegiatan diluar spesialisasi mereka; transfer dana melalui kegiatan CFW dapat dianggap sebagai hibah, hal tersebut akan memicu keraguan pelanggan atas keseriusan LKM sebagai penyedia jasa keuangan yang memiliki reputasi yang baik. Namun demikian, ada cara dimana LKM bisa terlibat secara tidak langsung dengan kegiatan CFW: membangun konsensus dengan para penyedia CFW untuk menghindari distorsi pasar. menghubungkan para penyedia CFW dan para penerima untuk memasok jasa keuangan yang dibutuhkan, termasuk layanan pembayaran dan layanan simpanan.

Kemitraan LKM dalam Kerja-demi-uang Ada peluang bagi LKM untuk bermitra dengan para penyedia CFW, yaitu dengan menyediakan layanan pembayaran pelanggan CFW dan juga layanan simpanan. LKM perlu merundingkan hal-hal sebagai berikut dengan para instansi penyelamatan untuk menyediakan layanan pembayaran secara efisien: biaya komisi untuk layanan pembayaran; pengaturan keamanan dalam pengiriman uang; jadwal waktu pembayaran uang tunai; mekanisme pengambilan uang tunai; biaya pelayanan untuk pengambilan uang tunai.

6. Rangkuman Dalam konteks paska bencana, maka memperbaiki penghidupan adalah kegiatan yang sangat serius, dalam hal ini LKM memainkan peranan yang penting. Menyusul penilaian terperinci dari situasi pelanggannya, LKM bisa menawarkan berbagai modifikasi produk keuangan mikro yang sudah ada. LKM juga dapat menawarkan berbagai produk baru untuk menanggapi situasi bencana. Koordinasi erat diperlukan antara para instansi penyelamatan dengan LKM-LKM untuk memastikan bahwa hibah, kerja-demi-uang dan berbagai intervensi lain seperti itu dapat berinteraksi positif dengan berbagai produk berjangka lebih panjang yang ditawarkan oleh LKM. SLIDE 4: PART 1. Overview of Risks Faced by MFIs Estimated Duration: 10 minutes Technique: Lecture Facilitator Note: Be careful that participants do not become side-tracked by over-discussing the detail of the three risk categories mentioned on this slide, as it is the fourth risk category - “EXTERNAL RISKS” (slide 5) - that is the main point of interest in this module. Institutional Risks: Governance: e.g. lack of focus, failing to protect the MFIs assets, allowing sub-standard financial reporting. Dependence on donors: The question of sustainability. What happens to the MFI if donors withdraw their support? Mission drift: Who is the MFI supposed to serve? What is the MFI meant to do? E.g. Is the MFI a financial intermediary or a generalist development NGO? Reputation: Does the community-at-large respect the MFI as a provider of financial services? Do lenders and investors respect the MFI as a trustworthy partner. Operational Risks: Credit risk: Quality of the loan portfolio. Does the MFI expect and demand that loans are repaid. Do the operational systems ensure this? Liquidity risk: Is the MFI able to pay its creditors in a timely manner? Transaction risk (negligence, mismanagement, errors): Is transaction data managed effectively? Are reports readily available? Is the data readily consolidated? Fraud: Are there systems in place to minimize opportunity for fraud and theft? Financial Risks: Assets and liabilities: How “strong” is the Balance Sheet? To what extent do assets exceed liabilities? Interest rate, exchange rate: Does the MFI use different currencies for different purposes? (e.g. funds sourced in US$ but lent out in local currency). If so, what will be the effect of a significant change in exchange rate? To date, capacity-building and technical assistance for MFIs has focused on improving their ability to manage these types of risks. Less work has been done on managing EXTERNAL RISKS (see slide 5). Glossary items: Governance Risk Management