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.
  • Policies
  • Limits
  • Risk Management Tools
  • Risk Monitoring Tools
Tier 3 Guidelines Tier 2 Guidelines Tier 1 Guidelines
Commitment to manage governance risk
Formal set of policies and procedures to manage governance risk, including:
Formal set of policies and procedures to manage governance risk, including:
• Up-to-date elections regulations
• Up-to-date elections regulations
• Up-to-date elections regulations
• Participation of members of Board of Directors (BoD) in credit committee
• Participation of members of BoD in credit committee
• Participation of members of BoD in risk committee or ALCO
• Participation of members of BoD in risk committee or ALCO
• Participation of members of BoD in audit committee
• Participation of members of BoD in audit committee
• Internal work regulations
• Internal work regulations
• Travel and subsistence regulations
• Travel and subsistence regulations
• Code of ethical conduct
• Code of ethical conduct
• Succession plan for CEO and key personnel
• Succession plan for CEO and key personnel
• Policies for the management of conflicts of interests
Balance between the financial and social strategies provided by the BoD
Balance between the financial and social strategies provided by the BoD
Balance between the financial and social strategies provided by the BoD
Financial statements closed within three months after the month’s cut-off date
Financial statements closed within one month after the month’s cut-off date
Financial statements closed within 10 days after the month’s cut-off date
Annual external audit
Annual external audit
Annual external audit by renowned firm
Risk rating in line with regulation
Biennial risk rating
Annual risk rating
Biennial social rating
SMART Certification for client protection
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
Tier 3 Guidelines Tier 2 Guidelines Tier 1 Guidelines
Mapping of governance risks (at least every two years)
Mapping of governance risks (at least every two years)
Annual mapping of governance risks
Clearly communicated performance expectations and lines of accountability for CEO
Clearly communicated performance expectations and lines of accountability for CEO
Clearly communicated performance expectations and lines of accountability for CEO
Information flow to the BoD
Information flow to the BoD
Information flow to the BoD
• Structured management report, or financial statements, basic portfolio report, and quarterly report on fulfillment of operational plan
• Structured management report, or financial statements, basic portfolio report, and quarterly report on fulfillment of operational plan
• Well-structured management report that includes a summary of the reports presented to the committees
• Quarterly report of social indicators
• Monthly report of social indicators including an analysis of the risk of mission drift
• Information validated by independent area (internal audit, system, or accounting)
Training of members of the BoD based on training plan
Training of members of the BoD based on training plan and auto-evaluation of the BoD, with dedicated budget
Annual auto-evaluation of the BoD and elaboration of an action plan
Shareholders’ Agreement, including explicit and clearly defined social goals/indicators
Annual review of conflicts of interest
Annual review of conflicts of interest
Tier 3 Guidelines Tier 2 Guidelines Tier 1 Guidelines
Annual auto-evaluation of the BoD and elaboration of an action plan
  • Policies
  • Limits
  • Risk Management Tools
  • Risk Monitoring Tools
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
Tier 3 Guidelines Tier 2 Guidelines Tier 1 Guidelines
Not applicable
Not applicable
Not applicable
Tier 3 Guidelines Tier 2 Guidelines Tier 1 Guidelines
Mapping of strategic risks (at least every two years)
Mapping of strategic risks (at least every two years)
Annual mapping of strategic risks
Business plan
Business plan
Business plan
Operational plan
Operational plan
Operational plan (consolidated and by department)
Mission
Mission
Mission
Individual goals and objectives for field personnel
Individual goals and objectives for field personnel
Individual goals and objectives for all personnel
Financial projections with 3–5 year horizon and reviewed annually
Financial projections with 3–5 year horizon, reviewed annually and based on different scenarios
Definition of social objectives
Definition of social objectives
Annual client satisfaction surveys and feedback for product development
Quarterly client satisfaction surveys and feedback for product development
Social performance management system
Tier 3 Guidelines Tier 2 Guidelines Tier 1 Guidelines
Annual auto-evaluation of the BoD and elaboration of an action plan