ASSESSMENT OF RISK AND RISK MANAGEMENT MEASURES AMONG MFIS IN KUMASI

Abstract

Micro finance has become a major economic development tool that seeks to provide financial and social intermediation services to the low income, self-employed clients. Since microfinance products are flexible enough to offer adequate financial services to the large percentage of Ghanaians whose lifestyles and work finds little attention in the commercial banking system, it has become a very important institution which needs to adopt comprehensive approaches to ensure its long term sustainability. The purpose of this research was to delve into issues regarding: the various risks encountered by this industry; the management measures put in place to manage the occurrence of these risks and the challenges faced in their implementation. Questionnaires administration, observations and interviews were conducted by way of methodology into three segments of this industry with a sample size of 50 respondent institutions. It was found that; loan default and loan delay, human errors and errors emanating from the application of information technology; fraud and armed robbery; exchange and interest rate fluctuations; heightened competition from new entrants and the cost of legal liability, in their order of severity and prevalence as the main risk factors affecting this industry. It was learnt that measures like good credit assessment, records analysis and employee training are used to manage these risks. Human resources and financial costs required for implementing these measures were some challenges faced in this regard. From the responses, it was realized that though risk management was inevitable it was not given the required level of attention in this industry. Recommendations given had to do with a radical approach to provide some training to the managers especially of the semiformal and informal sector and also to step up education on financial literacy in the industry.