Microfinance Institutions and Operational Risk Management in Zimbabwe: Insights from Masvingo Urban

Abstract

This paper examines the challenges of Operational Risk Management (ORM) by microfinance institution (MFIs) in Zimbabwe with insights from Masvingo urban. The provision of financial resources to the poor is widely believed to increase the incomes and productivity of the poor. This strategy follows from the assertion that economically active poor people fail to access financial resources from the traditional financial institutions. MFIs are the suppliers of financial resources to the poor. About 90 percent of people in developing countries lack access to financial resources from formal institutions. These risks are life threatening to the existence and sustainability of microfinance institutions. Risk management is one of the crucial issues necessary for the growth and development of any entity. The ability to manage operational risk will put the organizations at competitive positions hence enabling them to survive in the business environment. A number of MFIs face collapse or near-collapse because they are not capacitated to detect operational risks beforehand. The paper adopts qualitative research methodology, following a case study research design. The Zimbabwean case was explored to gather information about the problem. Secondary data were collected from MFIs’ reports, publications, journals and text books on operational risk management. The results show that ORM is scantly understood and poorly conceptualized and operationalized among MFIs. DOI: 10.5901/mjss.2013.v4n3p159