Managing risk for sustainable microfinance

Heather Knewtson, Howard Qi

Research output: Contribution to journalArticlepeer-review

4 Scopus citations

Abstract

Purpose: The purpose of this paper is to provide an insurance framework to address the challenge of managing default risk for lenders providing credit to small and micro businesses. Design/methodology/approach: A theoretical model is developed showing how mircrofinance lenders can better manage the default risks of small and micro businesses, which assists lenders in sustainably providing affordable microfinance. Findings: The model explains how to determine the feasible range of insurance premiums to advise lenders on the appropriate price for microinsurance protecting against small and micro business default. This will enable microfinance institutions to better manage default risk, and thereby provide sustainable and accessible microfinance assistance to small and micro businesses. Social implications: The need for microfinance is essential to support small and micro businesses. The insurance framework assists financial institutions in managing default risk of small and micro businesses, enhancing sustainability of these critical financing channels, and supporting the economic development of society in both the developed and developing worlds. The insurance framework proposed will help both policymakers and financial institutions to make better economic decisions, thereby serving small and micro businesses. Originality/value: This is the first study in the area of microfinance to propose a way to solve the challenge of providing sustainable mircrofinance services and mitigating small and micro businesses’ difficulty in receiving the financial help they need.

Original languageEnglish (US)
Pages (from-to)2-13
Number of pages12
JournalJournal of Risk Finance
Volume20
Issue number1
DOIs
StatePublished - Jan 23 2019
Externally publishedYes

Keywords

  • Insurance
  • Micro business
  • Microfinance
  • Microinsurance
  • Small and micro business
  • Small business

ASJC Scopus subject areas

  • Finance

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