Strategic Risk
Strategic Risk encompasses the risk of financial losses and negative social performance related to the strategic direction of the institution. Two subcategories have been identified within strategic risk: governance risk and strategic risk.
- Governance Risk – Governance risk is the risk of financial losses and negative social performance related to inadequate governance or poor governance structure.
- Strategic Risk – Strategic risk encompasses the risk of financial losses and negative social performance related to the strategic direction of an institution. This includes strategic aspects such as the institution’s mission, vision, strategic plan, and mission alignment amongst shareholders. One of the most important aspects of strategic risk concerns the potential of an MFI to experience mission drift.
Governance Risk
Policies
Limits
Tier 3 Guidelines |
Tier 2 Guidelines |
Tier 1 Guidelines |
Limits on the composition of the BoD | Limits on the composition of the BoD | Limits on the composition of the BoD |
• Composed of 5 to 9 members | • Composed of 5 to 9 members | • Composed of 5 to 9 members |
• At least 50 percent of members are professionals and 30 percent have a socially-focused background | • At least 50 percent of members are professionals and 30 percent have a socially-focused background | |
At least quarterly BoD meetings | At least quarterly BoD meetings | At least monthly BoD meetings |
Risk Management Tools
Risk Monitoring Tools
Tier 3 Guidelines |
Tier 2 Guidelines |
Tier 1 Guidelines |
Annual auto-evaluation of the BoD and elaboration of an action plan |
Strategic Risk
Policies
Tier 3 Guidelines |
Tier 2 Guidelines |
Tier 1 Guidelines |
Commitment to manage strategic risk | Formal set of policies and procedures to manage strategic risk | Formal set of policies and procedures to manage strategic risk |
Limits
Tier 3 Guidelines |
Tier 2 Guidelines |
Tier 1 Guidelines |
Not applicable | Not applicable | Not applicable |
Risk Management Tools
Risk Monitoring Tools
Evaluate