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Managing Operational Risk Related to Microfinance Lending Process using Fuzzy Inference System based on the FMEA Method: Moroccan Case Study

Author

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  • Youssef Lamrani Alaoui
  • Mohamed Tkiouat

Abstract

Managing operational risk efficiently is a critical factor of microfinance institutions (MFIs) to get a financial and social return. The purpose of this paper is to identify, assess and prioritize the root causes of failure within the microfinance lending process (MLP) especially in Moroccan microfinance institutions. Considering the limitation of traditional failure mode and effect analysis (FMEA) method in assessing and classifying risks, the methodology adopted in this study focuses on developing a fuzzy logic inference system (FLIS) based on (FMEA). This approach can take into account the subjectivity of risk indicators and the insufficiency of statistical data. The results show that the Moroccan MFIs need to focus more on customer relationship management and give more importance to their staff training, to clients screening as well as to their business analysis. JEL Codes - G21; G32; C02

Suggested Citation

  • Youssef Lamrani Alaoui & Mohamed Tkiouat, 2017. "Managing Operational Risk Related to Microfinance Lending Process using Fuzzy Inference System based on the FMEA Method: Moroccan Case Study," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 64(4), pages 459-471, December.
    • Handle: RePEc:aic:saebjn:v:64:y:2017:i:4:p:459-471:n:83
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    References listed on IDEAS

    as
    1. Niels Hermes & Robert Lensink, 2007. "Impact of microfinance: a critical survey," ULB Institutional Repository 2013/14196, ULB -- Universite Libre de Bruxelles.
    2. Reveiz, Alejandro & Carlos, Leon, 2010. "Operational Risk Management Using a Fuzzy Logic Inference System," Journal of Financial Transformation, Capco Institute, vol. 30, pages 141-153.
    3. Monica Ortolani, 2006. "Monitoring the Microfinance Processes," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Microfinance, chapter 6, pages 93-111, Palgrave Macmillan.
    4. Rachid Belhaj & Mohamed Tkiouat, 2015. "Including Client Opinion and Employee Engagement in the Strategic Human Resource Management: An Advanced SWOT- FUZZY Decision Making Tool," International Journal of Human Capital and Information Technology Professionals (IJHCITP), IGI Global, vol. 6(3), pages 20-33, July.
    5. Maren Duvendack & Richard Palmer-Jones, 2012. "High Noon for Microfinance Impact Evaluations: Re-investigating the Evidence from Bangladesh," Journal of Development Studies, Taylor & Francis Journals, vol. 48(12), pages 1864-1880, December.
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    More about this item

    Keywords

    FMEA method; fuzzy logic inference system; microfinance lending process; operational risk management;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics

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