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How to Set Interest Rates and Analyze Associated Risks

Sousan Urroz-Korori

How we cost a product in a financial institution is a function of the risks that are associated with that product. Risk is a measure of the degree of uncertainty associated with the return on one asset relative to an alternative asset. This five-day intensive module focuses on understanding all aspects of risk associated with the interest rates that we charge a client, both from an investor’s and the microfinance institution (MFIs) point of view, including the real cost of capital.

Through lectures, mini case examples, and class discussions/group presentation, we examine the opportunity cost of alternative capitalization strategies for MFIs, international donor agencies, and other private/public sector entities that are actively engaged in funding MFIs.

We analyze currency risk exposure specially when the original investment or capital is in a hard currency --such as U.S. dollars and discuss the impact that large remittance has on a currency value and its effect on financial reporting of MFIs, through reviewing the case of Guatemala in 2018/2019.

Other topics include understanding risk associated with the institution's financial management, liquidity management, inflation and its impact on capitalization (nominal vs. real interest rates), the impact of governments’ budget deficit on the interest rate equilibrium, default risk premium, credit risk. We try to learn how to manage our currency risk/capital risk. We conclude the session by looking at the product costing methodologies of many current MFIs and examine their future interest rate risk exposure. 

Intended Audience: MFI Management teams, Investors, and Regulators including central bankers.

To See Course Syllabus, click here

Boulder Institute of Microfinance

120 E Washington Street Suite 325
Syracuse, New York 13202, USA
+1 (315) 760-3091

info@bouldermicrofinance.org

Boulder Institute