Farmers in developing countries rely on Microfinance Institutions (MFIs) for loans in order to buy seed and raise crops. Due to the high incidences of defaults on these loans, the interest rates end up being exorbitant, making a successful outcome even more challenging. Dr. Eric Osei’s research points out that MFIs might implement Risk Management (RM) processes to mitigate challenges before they result in loan failures.
Risk is an integral component of the governance of institutions in the financial services sector. The expansion of the scale and scope of banking activities of MFIs has contributed to higher incidence of risks. However, the microfinance industry has neglected the need to adopt effective risk management controls, whilst others are using risk controls originally designed for large multinational banks. With their peculiar governance structure and objectives, the use of risk management controls specific to the industry would address risk challenges and improve performance of MFIs.
Dr. Osei’s research investigates how managers of MFIs in Ghana adopted risk management control in managing their risk exposure, and explored how contextual factors of the microfinance industry might influence its successful implementation. Findings from this research establish that risk controls begin with identification of firm risks, risk controls are inherently tied with firm risk exposures, risk controls improve performance of MFIs, and environmental factors influence the design and implementation of risk management controls.
Dr. Eric Osei