Contents: Preface ix Acknowledgments xi About the Authors and Contributors xiii Abbreviations xvii 1 Risk Management: Preparing for the Unexpected 1 Risk Categories 3 Management of the Biggest Risks 5 Producer Risks 7 Additional Risks for MFIs with Rural Por?olios 8 Development of a Risk Management System 10 Steps in Risk Management 11 Approaches to Managing Risks 13 2 Good Governance: Managing Internal Risk 17 Ownership, Legal Form, and Their Impact on Governance 19 NGOs 20 Private Investors 20 Government 21 External Public Entities and Aid Agencies 22 Microfinance Investment Vehicles 22 MFIs in Transformation 22 The Board of Directors: Functional Responsibilities 23 The Board of Directors: Effective Structure 26 The Board of Directors: Effective Processes 28 The Board of Directors: Member Selection and Participation 32 Summary and Conclusions 35 3 Interest Rates: Paying for Risk 39 Introduction 41 Interest Rate Se?ng 41 Are Microfinance Interest Rates Too High? 43 Lowering Interest Rates at the Institutional Level 44 Lowering Interest Rates through Government Policy 45 Conclusion 48 4 Microinsurance: Anticipating Client Risks 51 Insurance Products and Low-Income Clients 53 Design of the Product for Low-Income Markets 53 Microinsurance for Rural Clients 56 Delivery of the Product 57 How Does Latin America Fare in Microinsurance Coverage? 59 MFIs and the Barriers to Mainstreaming Microinsurance 60 Conclusion 62 5 Progressive Housing Microfinance: Building One Room at a Time 65 The Housing Microfinance Approach 67 Institutional Changes 69 Subsidies 69 Vi Contents The Role of Government and Risk Management 70 Examples from Latin America 70 Lessons Learned 72 Designing a New Housing Microfinance Program 73 6 Microleasing: Overcoming Equipment-Financing Barriers 77 The Basics of Microleasing 79 Advantages of Leasing for Microbusinesses 79 Advantages of Microleasing for the MFI 80 Tax and Regulatory Considerations with Microleasing 81 Management of Microleasing Risks 82 Use of Microleasing in Latin America 82 Recommendations for a New Microleasing Program 84 7 Disaster Management: Preparing for the Worst 87 An Unfortunate but Common Story 89 Costs of Disasters 89 Proactive Approaches and Concrete Responses 91 Conclusion 97 8 New Technologies: Providing a Path to Lower Costs and New Products 101 Introduction 103 Why Technology Maers 103 Mobile Banking 104 Network Systems 105 Remote Data Processing 106 PDAs 106 POS Terminals 107 Biometrics 108 Costs, Risks, and Challenges 109 Conclusion 111 Glossary 115 Index 117 BOXES 1.1 Basel Committee: International Standards and Practices for Risk Management 10 1.2 Risk Measurement Systems 13 2.1 Investors as Board Members 21 2.2 Questions to Assess the Implications of an MFI's Ownership Structure 23 2.3 The Board and Social Performance Management 24 2.4 Evaluating Board Performance 25 2.5 Some Do's and Don'ts for Boards 27 2.6 Sample Board Meeting Agenda 29 2.7 A Case Study: The Dominican Integrated Development Institute 31 2.8 Responsibilities and Standards of Conduct for Board Members 34 3.1 Microcredit Cost Structure 44