Internal Risk Management Practices of Selected Microfinance Institutions in Iloilo, Philippines


by: Frediezel G. De Leon, John G. Decomotan, Rhodella A. Ibabao, Kathleen S. Sadio, Rachelle P. Sondia, Nicolea Irene B. Ycay


The Philippines, situated in the Pacific Ring of Fire, is susceptible to many calamitieswhich make the poor economically vulnerable. Microfinance Institutions (MFIs) respondto the vulnerability of economically-disadvantaged people through provision of an array offinancial services, including loans, savings, and insurance. While most literature focus onthe risk management strategies of clients, this paper highlights the internal risk managementpractices of MFIs. Churchill and Coster’s Categories of Risk (2001) model is used todescribe MFI’s practices in relation to institutional risks, operational risks, and financialmanagement risks. Primary data were collected through key informant interviews amongofficials with decision-making functions, and through direct observations. Complementarysecondary data were used, such as reports, organizational records and brochures.Results showed that MFIs recognized the presence of risk in their operations becauseof the profile of their clients and nature of their industry. They were able to manage theserisks by implementing various procedures viz. embedding microinsurance in loan products,regular review and update of strategies, daily transactions, and integrity of data. Buildinginstitutional capacity is also an integral element to managing risk.

Keywords: Microfinance Institutions, internal risk management, institutional risks, operational risks, and financial management risks.