Risk Mitigation and Management in the Microfinance Banking Sector in Zimbabwe: A Case Study of Empowerbank

Abstract

The microfinance sector has become a major conduit for the provision of financial services to the informal business sector and the generally marginalized poor citizens who are shunned by the conventional banking system based on high risk. Quite a significant number of microfinance institutions have been struggling for survival since the adoption of the multicurrency owing to the general meltdown of the economy. This study sought to understand the key risk mitigation measures to arrest microfinance bank failure in Zimbabwe and the focus of the study was Empower bank. The main objectives of the study were; to find out the importance and value of risk management, to establish the operational policies and guidelines to mitigate risk factors, to assess the effectiveness of risk management guidelines, to evaluate the risk mitigation strategies that have been designed and implemented by Empower Bank and to assess the challenges that have been faced by Empower bank in reducing risks associated with failure. The methodology which was used included both qualitative and quantitative research. The research design was a case study. The main research instruments which were used for the study were questionnaires and in depth interviews. A total of 36 respondents, inclusive of six key informants were purposively selected because of their role in risk management at Empower bank. The study showed that the dominant risk factors that were common at Empower bank include credit risk, audit risk, fraud risk, and foreign currency risk among other factors. The study further showed that risk management structure and reporting requirements were in place at Empower Bank as well as the presence of a Board Committee on risk management but that there was a need for further refinements with continuous updates of risk management policies. Empower Bank should operate using Basel models II as well as Basel model III, which calls for operational efficiency and effectiveness within financial institutions. The study recommends prudent risk management, sound corporate governance, use of technology, regulatory framework and innovations, and staff training and motivation as significant drivers of success and risk mitigation measures for microfinance institutions in Zimbabwe. Other factors affecting the success of microfinance institutions (MFIs) include management and leadership, access to resources as well as coverage, reach, and marketing.