Graduation Model

The RIM Graduation Model is a pathways-based, best practice standard for risk management in the microfinance sector. Through a diagnostic process, MFIs can assess their current risk management systems, structures, and capabilities against the RIM Graduation Model and determine their adherence to best practice risk management standards applicable to their institutional tier level. Through assessing their adherence to best practice risk management standards, MFIs are then able to determine their RIM Graduation Path – a strategic improvement pathway which would bring their risk management practices in line with the RIM Graduation Model guidelines.

Through consolidating decades worth of experience in providing technical assistance and capacity building activities as well as implementing risk management technical projects, RIM Founding Members have identified a number of contributing factors as to why a the RIM Graduation Model is needed within the microfinance sector.

  1. Lack of Suitable Risk Management Standards for MFIs at Varying Tier Levels: Currently, barriers and inefficiencies exist which deter MFIs from engaging in risk management. Lack of suitable risk management standards for MFIs at varying tier levels result in financial and psychological barriers whereby MFI practitioners choose not to engage in risk management due to the inability to effectively evaluate the risk management needs of an institution against that of an international benchmark. Similarly, financial inefficiencies are created through spending unnecessary institutional and donor resources than necessary on risk management approaches and technical services which may not be suitable for the MFI at that point in time. Financial and psychological barriers can be lowered and financial resources saved through the use of the RIM Graduation Model.
  2. Value of Risk Management Misunderstood by Many Microfinance Practitioners: Given the lack of suitable risk management standards for various tier levels of MFIs, the true value of properly-conducted risk management is often misunderstood by practitioners engaged in its implementation. This lack of value translates into an unwillingness to prioritize and invest in risk management activities and often an internal lack of seriousness given to the function vis-à-vis other functions within an MFI.
  3. Existing Risk Management Frameworks Lack Coherent Link to Double-Bottom Line Mission of Microfinance: Within existing microfinance risk management frameworks, risk is often measured and defined in financial terms – reflecting risk management frameworks traditionally handed down from the commercial banking sector – or captured within definitions of strategic or reputational risk rather than within the fundamentals of the framework itself. The RIM Graduation Model brings double bottom line microfinance back into the forefront through re-framing risk terminology to encapsulate the social elements of the microfinance business model.
  4. Lack of a Suitable Pathway to Basel Compliance: As compliance to the Consultative Document titled “Microfinance activities and the Core Principles for Effective Banking” as published by the Basel Committee for Banking Supervision (BCBS) in 2010 is being promoted within microfinance regulatory authorities, a sizable gap exists between MFIs’ current operational realities (regulation, country and institutional infrastructure, incentive structures, and risk management skill-sets and appreciation) and their ability to operationalize outlined BCBS guidelines (including navigating the allowed flexibility within these guidelines). There is currently no suitable development pathway for an MFI to move away from current risk management practices and towards that of Basel compliance.

With proper adherence to the RIM Graduation Model standards, an MFI may experience the following benefits:

  • Cost-savings through focused, more efficient, allocation of resources towards the risk management function
  • Achieving transparency of your institution’s risk management graduation pathway
  • Alignment to a global risk management benchmark
  • Ability to proactively plan for risk management capacity requirements
  • Greater continuity in risk management capacity building due to internationally-accepted risk management framework
  • Clear communication to stakeholders about level of seriousness given to internal risk management priorities
  • An improved institutional risk profile as viewed by potential investors and regulators

MFIs which have participated in the Risk Management Graduation Model piloting include:

MFIs which have conducted full Risk Management Graduation Model Assessments include:

If you are interested in implementing the Risk Management Graduation Model within your institution or network, please contact RIM’s Director, Kristin Lucas.

Technical Paper

RIM Graduation Model for Microfinance Institutions (MFIs)
EN / FR / AR / ES

Position Paper

Toward a Consistent and Appropriate Risk Management Framework for MFIs

Case Study

Leveraging Risk Management for Future Growth: UNTU Microfinance

RIM GM Assessment Tool (basic version)

for deposit-taking MFIs
EN / FR / AR / ES

RIM GM Assessment Tool (basic version)

for non-deposit-taking MFIs
EN / FR / AR / ES

The achievement of an MFI’s financial and social goals.

  • 1. Strategic Risk

    Strategic Risk encompasses the risk of financial losses and negative social performance related to the strategic direction of the institution.

  • 2. Credit Risk

    The risk of financial loss resulting from the inability to collect anticipated interest earnings, or on capital resulting from loan default, as well as the negative social performance resulting from credit activities which do not have the best interest of clients in mind. Credit risk includes credit transaction risk and portfolio risk.

  • 3. Financial Risk

    The risk of financial losses and negative social performance related to the maturity, currency, re-pricing, and concentration structure of an MFI’s assets and liabilities. Financial risk includes liquidity risk, market risk (including interest rate risk and foreign exchange risk), investment portfolio risk, and capital adequacy risk.

  • 4. Operational Risk

    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. Operational risk includes people risk, process risk, systems risk, external events risk, and legal and compliance risk.

The organizational foundation represents the basic organization structure that MFIs should have in place in order to effectively engage in formal risk management.
  • 1. Internal Control and MIS

    Internal control and MIS is the basis of formal risk management and is characterized by separation of functions, formalization and dissemination of policies, ex post controls, and a capable MIS.

  • 2. Risk Culture

    Risk culture is an MFI’s commitment to analyze information in a self-critical manner and “face the facts” to manage and prevent risks.

  • 3. Governance and Strategy

    Governance and strategy is defined by the group of owners and the objectives they want to achieve and sets the tone for the way the institution is run, from its social mission to its financial objectives.