|Creation of the Risk Management Facility for MFIs
Omtrix, Inc. (Omtrix) is pleased to announce the creation of the Risk Management Facility (RMF), a donor-funded technical assistance facility that will provide tools and training to microfinance institutions (MFIs) in Latin America and the Caribbean that address common financial risks. The Risk Management Facility will principally address Market Risk, Credit Risk, Liquidity Risk, and Operational Risk and will seek to adapt international standards, such as the methodologies put forth in Basel II to the needs and realities of regulated and unregulated microfinance institutions in the region. Omtrix has been responsible for both the structuring and fundraising of the facility. The financial plan for the facility has been recently completed with funding from highly respected industry participants such as the State Secretariat for Economic Affairs (SECO), Calmeadow, Appui au Dévelopment Autonome (ADA), DOEN Foundation (DOEN), and Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V. (FMO). Total funds committed amount to US$2,200,000. These funds will be used to make technical assistance available, under a cost participation scheme with participating MFIs, to close to 50 MFIs over the course of five years.
Omtrix (www.omtrixinc.com), a Costa Rica-based fund manager and financial consultancy specializing in microfinance, first recognized the need for such a facility through its work with the Emergency Liquidity Facility (ELF). ELF (www.emergencyliquidityfacility.com) serves as a lender of last resort for MFIs that experience liquidity shortfalls caused by external shocks, such as natural disasters or socio-political crisis that affect the financial system. By providing a contingent line of credit, ELF permits that strong, well-managed MFIs can overcome temporary liquidity crises and thus can continue to make loans to low-income clients at times when they most need to rebuild their homes and businesses. Operating parallel to ELF, the Technical Support Facility (TSF) provides both ex-ante and ex-post technical assistance to ELF’s pre-qualified MFIs to prepare for or recover from potentially devastating external shocks. Even though the TSF deals with a very specific and different set of risks, Omtrix quickly realized that many MFIs do not adequately manage the much more fundamental risks (such as market, credit, liquidity and operational risks) or do not have the resources to comply with national regulators’ demands. Omtrix’s experience and solid relationships with MFIs in the region (Omtrix also managed ProFund, the first equity fund investing in MFIs) allowed the company to begin developing ways to address this need in the rapidly growing microfinance industry.
The Risk Management Facility will begin operations at a critical time in the industry as the number of regulated MFIs increases and many unregulated institutions are considering transforming into regulated institutions. Local regulatory bodies in a number of countries in the region have begun or have plans to implement all or parts of Basel II, the international banking accord that prescribes advanced risk measurement tools and procedures to increase stability in the international financial markets. Regulated and transforming MFIs will quickly come under greater pressure from regulators to comply with these risk management standards and even unregulated MFIs may feel pressure from local and foreign investors and lenders to address these risks in a professional manner.
As the impact of microfinance on the larger financial system grows and more institutions mobilize savings, the need for MFIs to fully understand and address the risks they face increases in order to protect clients and ensure continued outreach to microentrepreneurs. Omtrix, through the RMF, will bring advanced risk management tools within the reach of MFIs, both technically and financially, thereby better protecting clients and funders and increasing compliance with regulators’ demands. The RMF will employ a model similar to that of ELF’s TSF, which leverages Omtrix’s microfinance experience to create an innovative offering for the growing industry. The RMF will avoid duplication of efforts and will employ regional experts to analyze, adapt, and design risk management tools and methodologies appropriate for MFIs.
For more information please contact Juan Carlos Pereira (firstname.lastname@example.org) or Alex Silva (email@example.com) at Omtrix, Inc. in San José, Costa Rica, Tel. (506) 220-4122.