Operational Risk Management Working Group

Background

Operational risk is the risk of financial losses and negative social performance related to failed people, processes, and systems in an MFI’s daily operations as well as losses stemming from external events and legal and compliance risk.

All financial institutions are required, either by regulation and/or best practice, to adequately manage and mitigate operational risk – which is embedded in all financial products and activities. Operational risk has always existed in bank and non-bank financial institutions, but increased complexity, globalization of the financial system, the emergence of cyber risk, and the recent materialization of unprecedented large losses has earned it greater relevance within the microfinance industry.

Many MFIs have already developed some operational risk assessment techniques. However, these techniques are often rudimentary, cumbersome, heavily judgmental, and backward-looking – lacking the ability to be systems-driven, forward-looking, and predictive.

Building on RIM’s Mission and Vision

RIM aims to support the industry in promoting and enhancing the effectiveness of operational risk management and oversight throughout the microfinance sector. RIM has developed its Graduation Model framework through which MFIs can develop and implement risk management systems appropriate to the level of institutional development. The ORM Working Group will create an operational risk assessment and associated reporting templates consistent with RIM’s Graduation Model. This operational risk assessment and reporting templates will assist Graduation Model users in implementing operational risk management systems as they seek to adopt RIM’s Graduation Model over time.

Expected Outputs/planned Accomplishments

The working group will review existing operational risk methods, tools, and templates currently in use in the global microfinance industry. Its focus will be on generally applicable methods, tools and templates, as well as some specific to selected operational risk areas in order to have a practical and focused approach.

Although some commercial banks and the larger MFIs may well use the more sophisticated advanced modeling approach adopted by central banks it is recognized that the working group will need to keep in mind its target audience and concentrate on the core microfinance market and select best practice examples capable of being enhanced and integrated into RIM’s Graduation Model and appropriate to the capabilities of its users.

As much as possible, the reports will be capable of being data- and systems-driven, with minimal human intervention. For simplicity, this may entail choosing proxy measurements.

Frequency of Meetings:

5-6 times a year

Governance

Chair: Josephine Woo
First Secretary: Open
Second Secretary: Yasser Tolba