Risk Management Strategies An Institutional Experience

2. Risk Management StrategiesAn Institutional Experience Presented By: Charity Mati Risk & Recovery Manager – KADET LTD May 2010 Committed to providing Quality financialservices

3. OVERVIEW General look on Risk. Risk Management Strategies. Risk Management Strategies Applied By KADET. Lessons Learnt During Our Interaction With Low Income Earners.

4. What is Risk? It is an event or condition that may or may not occur; but if it does occur, will impact on the ability of the organization to achieve the set objectives.

5. 1. Competition can either be seen as : A risk leading to a company being exited from the business or as a platform for innovation Case: Banks vs. Safaricom 2. Fibre optic technology can either be viewed as: A risky undertaking due to increased hacking vulnerability or a platform for increased e-commerce Case:. Safaricom data services Risk isn’t necessarily bad!!!!

6. No risk function. Risk is a major of Internal Audit. Auditors are to be avoided. Management is happy when no major risk/findings is detected by an outsider e.g. an Auditor. Crisis is good for learning hence wait until it Happens. Common Scenarios in Organizations

7. Enterprise Risk Management (ERM)in business includes the methods and processes used by organizations to manage risks and seize opportunities related to the achievement of their objectives. Identifying particular events or circumstances relevant to the organization's objectives (risks and opportunities), assessing them in terms of likelihood and magnitude of impact, determining a response strategy, and monitoring progress. What Is ERM?

8. Enterprise Risk Mgt Strategies Risk Identification: Risks must be identified and documented at both the transaction and portfolio levels. Risk Measurement: The next step is to measure its significance in terms of size, duration and probability of adverse occurrences. Risk Control: There are three basics ways to control, or minimize their adverse consequences a) avoiding or placing limits on certain activities/risks, b) mitigating risks and c) or offsetting risks. Risk limits, policies, standards and procedures that define responsibility and authority should be developed under each risk category.

9. Enterprise Risk Mgt Strategies Cont. • Risk Monitoring The MIS must accurately identify and measure risks at the inception of transaction, subsequent activities and any significant changes in risk profiles. • Then: • Acceptance • Control • Transfer • Reduce • Prepare BCP • prevent

10. The Risk Management Process

11. Benefits of Effective Risk Mgt. An increased likelihood of achieving the MFI’s vision and mission. Prioritizing the allocation and use of capital and other resources. Successful product development and roll-out. Giving an early warning of potential problems. Providing management with the skills to be prudent risk takers. Better ability to respond to competition. Sustain and improve institutional reputation. Better evaluation of costs for products and services.

12. Risk Mgt. Strategies that KADET applies Institutional culture. Client orientation. Staff incentives. Delinquency penalties. Enforcing contracts. Delinquent Management Manual. Profiling Risk. (Risk Register.) Branch and H/O loan committees. Compliance checklist- Enforcing policy adherence Business Continuity Plan(BCP).

13. Risk Management Training- This Includes: Risk management terminology. Roles & responsibilities. Concepts and principles. Process elements. Expected benefits/consequences. Tool application and demonstration. Risk Mgt. Strategies that KADET applies Cont.

14. Maintaining a thriving relationship with the customers from the commencement of the service delivery in order to encourage regular payments. Understanding customer in order to effectively communicate with and create a culture of paying. Generating a successful relationship between us and customers in order to maximize the credit risk management. Risk Mgt. Strategies that KADET applies Cont.

15. Investigating strategies to improve communication and apply improved processes of corresponding with the those customers. Standardized /Mapped processes. Risk Mgt. Strategies that KADET applies Cont.

16. Ouch! Hindrance to effective Risk Mgt. • Narrow focus on risk e.g. debt collection only • Complex reporting. • Unclear accountability. • An organization implementing risk Mgt due to regulation. • Confidence that other assurance functions exist to handle risk e.g. Audit. • Resistance to change. • We are not badly off attitude.

17. Lessons Learnt during our interaction with low income earners. • Poor/ Non – existent preparedness for dealing with loss.(Inadequate risk mitigation for their business). • Business Planning- Not usually informed by professionalism. Budget, cash flows etc. • They do not have networks that sufficiently support their enterprises e.g. Marketing linkages, Information system, Business support services. • Low income people have informal resilient mechanism to cope with risks.

18. Lessons Learnt - Contd. • People with low incomes save for such social related eventualities like dowry, death, wedding ( often informally).The formal ways of saving include, Merry go round, saving in kind, fattening Livestock etc. • Low income people demand for financial services like Insurance and they are willing to pay for the services. • Low income entrepreneurs need more than credit, they need savings, housing, and insurance.MFI must become innovative.

19. Lessons Learnt - Contd. • The low incomer earners are not ‘poor’ in mind and in ability to become great entrepreneurs all they require is financial services easily availed to them in simplest way possible among other support . • That there are very innovative but limited by technology. • That they’re credit worth. • They know what they want, just listen to them!

20. CONTACT US KADET LTD. Capitol Hill Towers – 2nd Floor Cathedral Rd – Off Haile Selassie Avenue Nairobi - Kenya Telephone: +254 2731984/56 Cell: 0722 200 402 To learn more about KADET, please visit our website on Website: www.kadet.co.ke

21. The EndThank You!