The Exposure of Microfinance Institutions to Financial Risk

This study examines the exposure of microfinance institutions to liquidity, interest rate and foreign exchange (FX) risk. It builds on a manually collected set of data on FX positions and the maturity structure of assets and liabilities of the largest microfinance institutions worldwide. The data suggests that microfinance institutions in the sample, on average, face no liquidity risk and that exposure to FX risk is lower than commonly assumed. Linking risk exposure to institutional characteristics, I find that legal status and regional affiliation are correlated with risk exposure while regulatory quality is not.