Managing risk for sustainable microfinance

Managing risk for sustainable microfinance PurposeThe purpose of this paper is to provide an insurance framework to address the challenge of managing default risk for lenders providing credit to small and micro businesses.Design/methodology/approachA theoretical model is developed showing how mircrofinance lenders can better manage the default risks of small and micro businesses, which assists lenders in sustainably providing affordable microfinance.FindingsThe model explains how to determine the feasible range of insurance premiums to advise lenders on the appropriate price for microinsurance protecting against small and micro business default. This will enable microfinance institutions to better manage default risk, and thereby provide sustainable and accessible microfinance assistance to small and micro businesses.Social implicationsThe need for microfinance is essential to support small and micro businesses. The insurance framework assists financial institutions in managing default risk of small and micro businesses, enhancing sustainability of these critical financing channels, and supporting the economic development of society in both the developed and developing worlds. The insurance framework proposed will help both policymakers and financial institutions to make better economic decisions, thereby serving small and micro businesses.Originality/valueThis is the first study in the area of microfinance to propose a way to solve the challenge of providing sustainable mircrofinance services and mitigating small and micro businesses’ difficulty in receiving the financial help they need. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Risk Finance Emerald Publishing

Managing risk for sustainable microfinance

The Journal of Risk Finance, Volume 20 (1): 12 – Jan 21, 2019

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1526-5943
DOI
10.1108/JRF-05-2018-0075
Publisher site
See Article on Publisher Site

Abstract

PurposeThe purpose of this paper is to provide an insurance framework to address the challenge of managing default risk for lenders providing credit to small and micro businesses.Design/methodology/approachA theoretical model is developed showing how mircrofinance lenders can better manage the default risks of small and micro businesses, which assists lenders in sustainably providing affordable microfinance.FindingsThe model explains how to determine the feasible range of insurance premiums to advise lenders on the appropriate price for microinsurance protecting against small and micro business default. This will enable microfinance institutions to better manage default risk, and thereby provide sustainable and accessible microfinance assistance to small and micro businesses.Social implicationsThe need for microfinance is essential to support small and micro businesses. The insurance framework assists financial institutions in managing default risk of small and micro businesses, enhancing sustainability of these critical financing channels, and supporting the economic development of society in both the developed and developing worlds. The insurance framework proposed will help both policymakers and financial institutions to make better economic decisions, thereby serving small and micro businesses.Originality/valueThis is the first study in the area of microfinance to propose a way to solve the challenge of providing sustainable mircrofinance services and mitigating small and micro businesses’ difficulty in receiving the financial help they need.

Journal

The Journal of Risk FinanceEmerald Publishing

Published: Jan 21, 2019

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