CEM REPORT, FINANCE| The financial landscape is rapidly evolving, with microfinance and fintech institutions playing a critical role in expanding financial inclusion and driving economic growth. However, these sectors also face unique risk management challenges.
To address these concerns, the Association of Enterprise Risk Management Professionals (AERMP) recently hosted the highly anticipated Microfinance and Fintech Risk and Compliance Summit.
The first-of-its-kind event brought together industry leaders, CEOs, MDs, and company secretaries for a comprehensive exploration of risk management strategies specific to microfinance and fintech.
A Collaborative Approach to Risk Management
The Summit offered a dynamic program featuring presentations on various topics, including credit risk, market risk, and harnessing technology for effective risk management. Industry experts shared valuable insights, fostering a collaborative environment for knowledge exchange.
Yinka Odutola, Director General of AERMP, highlighted the importance of the Summit in his interview with CEM: “The summit was organized to help industry players recognize and better manage risk in the microfinance and fintech ecosystem.”
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Odutola emphasized the distinct risk profiles of microfinance and commercial banking sectors. He pointed out that replicating commercial bank lending practices in microfinance can lead to unnecessary risk exposure.
“There’s a tendency for microfinance institutions to operate like traditional commercial banks, inheriting their risk models,” Odutola explained. “However, the risk profiles of these sectors are fundamentally different. Microfinance caters to a specific clientele, requiring tailored risk management strategies.”
Fintech Risks and the Power of Compliance
The Summit also shed light on emerging risks associated with the rapidly growing fintech sector. Odutola stressed the critical need for robust compliance practices within fintech institutions. He expressed concern that many fintech companies may be neglecting risk management.
“Many fintech companies are not devoting enough attention to risk management,” he noted. “This Summit aims to bridge this gap and empower them with the necessary tools.”
Harnessing Technology for Risk Management
The Summit explored the potential of technology for risk management. Sam Okenye, a speaker at the event, advocated for leveraging technology to streamline risk assessment and mitigation efforts. However, he cautioned against over-reliance on a single solution.
“While technology is a powerful tool, it’s equally important to have robust internal controls like gateways and regular system audits,” Okenye advised. “These measures safeguard against internally generated risks, which are a reality for all financial institutions.”
Okenye further emphasized the importance of regulations and collaboration in mitigating cyber risk, a challenge faced by all financial institutions. He believes that a combination of robust regulations and industry-wide collaboration can significantly reduce cyber risks for microfinance and fintech institutions.
Building a Sustainable Future for Microfinance and Fintech
The inaugural Microfinance and Fintech Risk and Compliance Summit garnered a positive response from attendees, with industry professionals commending the focus on evolving risk landscapes.
Encouraged by the success of the event, the AERMP plans to host the Summit annually. This ongoing platform will facilitate continuous dialogue and collaboration amongst stakeholders, allowing the microfinance and fintech sectors to develop and refine risk management best practices.
If You Ask Me
The event was quite inspiring from where I sat, the levels if risk incurred by microfinance banks and fintech gives a broader appreciation for the work they do and their contribution to the economy in general.
The inaugural Microfinance and Fintech Risk and Compliance Summit marks a significant step towards building a more resilient microfinance and fintech ecosystem. By fostering collaboration, knowledge sharing, and the adoption of robust risk management practices, these sectors can navigate the evolving risk landscape and empower financial inclusion for all.
By proactively addressing risk management, the microfinance and fintech sectors can ensure the sustainability of their operations and empower a wider range of individuals and businesses. This, in turn, contributes to achieving greater financial inclusion and propelling economic development forward.
