Operational Risk Management (ORM)in a growing microfinance industry

Michael KortenbuschBFC Managing Director

November 15Luxembourg

2

Who is involved?

ORM Process

Success Factors

3

General ManagementGeneral Management

Line Function 1Line Function 1 Line Function 2Line Function 2 Line Function 3Line Function 3 Line Function 4Line Function 4 Line Function 5Line Function 5

Risk ManagementRisk Management

Who is involved?

BoardBoard

4Operational risk management process

Top Down Assesment (TDA)Top Down Assesment (TDA)

Implementation Planning

AnalysisDecision

5

Strategic objective

PriorityRisk identification

Risk — process allocation Measure

Portfolio growth 40%

PAR increase- Risk occurs in training- Risk occurs in internal

control....

Takeover of competitor

Legal risks

Risk occurs in legal review RSA in

process YZ

Objective 3

… … ....

Objective 4

Risk B Risk B occurs in process XY

RSA in process XY

Top Down Assessment (TDA)

6Operational risk management process

Implementation Planning

AnalysisDecision

Loss registrationLoss registration

Risk Self Assessments (RSAs)Risk Self Assessments (RSAs)

7Register Operational Losses

Approval Information Assessment

ORMCommittee

Credit note orcomplaint Registration

1

Definition ofaction plans

Line staff

Risk Management

Management Board

2 3 4 5

Follow up

7 86

8Risk Self Assessment

15.11.2012

Risk Experience Effect Action for risk prevention Likelihood a* Impact b* RPF r** Ranking

Serve the customer

Customer doesn’t know

products

Customer dissatisfaction Complaint Training.

handouts 5 7 35 1

Frequent power cuts

Demotivation of staff

Loss of customer data

Installation of generators 3 5 15 2

Fraud Image damage Loss of assets Strengthen internal control 2 3 6 3

0 5

0 6

0 7

0 8

0 9

0 10

0 11

0 12

0 13

0 14

0 15

9Operational risk management process

Implementation Planning

AnalysisDecisionReviewReview

Approval of risk mitigation actionsApproval of risk mitigation actions

10Review

Step 1: Number of Operational Losses per year end

Step 2: Process allocation

Step 3: Complaints per Process

11Operational risk management process

Implementation Planning

AnalysisDecision

CommunicationCommunication

12Communication

LocalManagement

Board

Staff

Corporation/Mother

Company

ORM

RegulatingBank

Department Heads

Authorities

13

Success factors for Operational Risk Management

Must have

HARD FACTSDefined processesORM Tracking System

 

SOFT FACTSCommitted managementStaff awareness

Will have

HARD FACTSProceduresRM Committee

SOFT FACTSTrained staff

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"To win without risk is to triumph without glory."— Pierre Corneille

17BFC offers

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