Management of Risk in Microbusiness

Abstract

Good risk management is all about making the right decisions on how much risk should be taken, and how to handle the remaining risk. Done right, risk linked to given services is limited. It can be assessed using quantitative methods in order to identify the factors that influence it. Risk management is important in creating new growth opportunities and alleviating of poverty by way of job creation. Microfinance is even more important in this regard as it usually serves segments of population that are otherwise excluded from these services. It is a hard line to toe as serving a public interest role generally runs counter to the point of a business, namely generating profits. Every business has to at least be able to generate enough income to remain viable. In the microfinance world, that means that attention to detail has to be even more focused. Natural disasters or armed conflicts can`t always be foreseen, however preparations on handling the outcomes of these events can be made well in advance. Careful and repeated screening and monitoring is needed to provide successful operations. Good risk calculation is based on solid information on new market opportunities as well as existing operations. Periodic evaluations and improvements can ensure a healthy financial situation and solid growth. Promoting a culture that encourages good risk management is proving to be quite a challenge. DOI: 10.5901/ajis.2016.v5n3s1p185