Managing Risk
How We Manage Risk
- Thembani provides technical assistance to all micro-finance institutions benefiting from the guarantees.
- Shared Interest maintains a guarantee loss reserve fund (GLRF) equal to no less than 5% of the value of its outstanding guarantees.
- This fund is capitalized at levels in keeping with the quarterly risk ratings Thembani provides to Shared Interest.
- If a guarantee is called, the call is first covered by funds from the GLRF. This fund is then replenished from Shared Interest’s unrestricted net assets. Should the GLFR be insufficient to cover the amount of the call, losses could accrue to Shared Interest lenders as the ultimate guarantors of the loans in South Africa.
- Since inception, Shared Interest has used the reserve fund to cover losses totaling 4.9% of the value of guarantees issued.
- Shared Interest does not issue guarantees whose risk it cannot afford to cover.
Participating banks must
- Demonstrate their capacity to issue and manage loans,
- Do their own assessments of the borrowing organization,
- Actively participate taking risk by lending more than the Shared Interest guarantee,
- Report regularly to Thembani on the performance and repayment of the loan, and
- Serve low-income South Africans with no other source of credit.
Community institutions receiving guaranteed loans must
- Demonstrate a significant developmental impact in the low-income communities they serve by providing appropriate financial services, technical assistance and related community programs that result in new businesses, jobs, affordable homes, and community facilities,
- Submit a viable business plan showing how the loan will be used, managed and repaid.
- Maintain a record of financial soundness, and strong management, performance and community support,
- Share risk of the loan (often by providing collateral or a facility to cover the first 5 to 10% of losses), and
- Report regularly to Thembani on performance and impact, and utilize technical assistance as needed.